Indiana Law Review


Coverage and Care for the Medically Indigent:

Public and Private Options

Randall R. Bovbjerg*
William G. Kopit**

I. Introduction

As of March 1984, about 35 million people had no health insurance
coverage, public or private, although some of them were only temporarily

uncovered. Up to 40-odd miUion more, often called the "underinsured,"
had incomplete coverage.^ These people, with little or no insurance, need

periodic medical attention as much as or more than the well insured,
but face far more trouble getting it.^ Often, they have been forced to

rely on the charity of providers, particularly hospitals.

From a hospital's viewpoint, the issue is how much "uncompensated
care" to give. As every newspaper reader or "Sixty Minutes" viewer
knows, hospitals in today's more competitive environment have more

limited ability to care for the needy with public funds or from margins

earned caring for the better-off.^ From the patient's perspective, the
problem is access to care. One hears of patients being shuttled from
hospital to hospital in search of care, even when the need seems urgent,"^

Senior Research Associate, Health Pohcy Center, The Urban Institute, Washington,

D.C.; Research Fellow (off-site). Program for Law, Medicine, and the Health Care Industry,

Indiana University School of Law—Indianapolis. A.B., University of Chicago, 1968; J.D.,
Harvard Law School, 1971.

Partner, Epstein Becker Borsody & Green, P.C. A.B., Bucknell University, 1961;
J.D., Columbia University, 1964.

The authors gratefully acknowledge the assistance of Joyce Cowan, Associate with

the firm of Epstein Becker Borsody & Green, P.C, in preparing this Article.

'On the numbers of uninsured and underinsured, see infra text accompanying notes

11-29.

^See infra text accompanying notes 27-29.

^According to data from the American Hospital Association, for the year ending June

1986, hospitals' net patient margin was only 0.8%; total net margin (including non-patient

revenues) was 5.4%, down from 2.0% and 6.3% the previous year. Hosp. Research & Educ.
Trust, Selected Hospital Performance Indicators: June 1985 & 1986, Econ. Trends, Fall
1986, at 5.

*See, e.g., Cahan & Pave, When the Patient Can't Pay the Medical Bill, Bus. Wk.,
Feb. 18, 1985, at 59; Taylor, Ailing, Uninsured and Turned Away, Washington Post,

June 30, 1985, at Al, col. 3.

857



858 INDIANA LA W REVIEW [Vol. 19:857

and of hospitals
* 'dumping" impecunious patients on the nearest public

hospital legally obligated to take them.^ The problems that poor patients

have in receiving more routine care from physicians, hospital outpatient

departments, or other providers are far less dramatic or well documented.

The intertwined problems of the uninsured population and of un-

compensated care have grown rapidly in the recent past and are likely

to continue to grow in the near future. Private insurance, public pro-

grams, and hospital margins are all in a "cutback*' era, and unfortu-

nately, the uninsured are on the cutting edge.^

Under our legal system, states and localities bear the ultimate re-

sponsibility for fashioning whatever responses are made. Indeed, the

uninsured/uncompensated care problem was high on the agenda of most

state legislatures during the 1986 sessions and will probably remain so

for 1987.^ BilHons of dollars in new assistance seem needed. The current
federal administration is unlikely to offer new assistance for these efforts.^
Thus, it seems Hkely that the usual American genius for weaving together

various strands of partial solutions through varied mechanisms will have

to come into play. This Article suggests what such mechanisms may be.

II. The Nature and Extent of Problems

A. The Medically Indigent and the Uninsured

The problem of providing health care for those who cannot or do
not provide for themselves can be seen from a number of perspectives.

In fact, there is no consensus on what "the" problem is. Localities

around the country differ tremendously in their populations' medical

needs and in their patterns of medical financing and delivery, and there

is probably even more diversity in practical and philosophical approaches
to proposed solutions in each area. Some people are concerned only
about providing emergency care for the very poor and uninsured; others

worry that even many insured people are not well covered and hence
cannot pay, in full, providers who treat them.

Nevertheless, it seems clear that insufficient financing adversely af-

fects access to care and, thus, the health of the medically indigent. By

^See, e.g., Schiff, Ansell, Schlosser, Idris, Morrison & Whitman, Transfers to a
Public Hospital, 314 New Eng. J. Med. 552 (1986); Wrenn, No Insurance, No Admission,
312 New Eng. J. Med. 373 (1985); The 'Dumping' Problem: No Insurance, No Admission
(letters) 312 New Eng. J. Med. 1522 (1985); Knox, Some Local Hospitals 'Dump' The
Uninsured, Boston Globe, Feb. 6, 1984, at 31, col. 2.

^See infra text accompanying notes 46-64.

''See, e.g.. Intergovernmental Health Policy Project, George Washington
Univ., Major Changes in State Medicaid and Indigent Care Programs (July 1986).

^See infra note 63.

1



1986] CARE FOR MEDICALLY INDIGENT 859

''medically indigent," this Article means the class of people who cannot
afford necessary medical care from their own resources or from health
insurance coverage, if any.^ It should be noted that the Article follows

general usage by recognizing that even middle class people can become

"medically" indigent when their net medical bills, after insurance, are
very high relative to their income and assets. Of course, the likelihood
of medical indigency is far less for such people than it is for those who
begin with low incomes and little or no insurance coverage.

B. The Uninsured: Number and Characteristics

People without public or private health insurance are the core of

the medical indigency problem.'^ People who have coverage, but coverage
that does not fully protect against catastrophic losses—and hence against
medical indigency—are a lesser problem.^'

How many people are uninsured and face problems of medical access?
Who are they and why do they lack resources? How much care do they
get now? What is the extent of the financial shortfall? All of these
pertinent questions can be answered only imperfectly from available

evidence.

To understand who lacks coverage, one must appreciate how most

'None of the three elements—necessary care, poverty, and lack of (adequate) in-
surance—readily allows of a clear-cut, operational definition. Opinions vary greatly on
how much medical care is truly needed, on how poor one must be to be truly needy,
and on what constitutes inadequacy in insurance. Moreover, deciding on medical indigency

in advance of a known level of medical need (or spending) is even more difficult.
'""Insurance" as used here means any financing method available to a patient other

than out-of-pocket payment or charity. Public coverage includes Medicare, Medicaid, and

other medical assistance plans. Private coverage need not be "insurance" under the state

insurance code. It may be conventional coverage from a commercial life and health
insurance company, such as Prudential, or from a not-for-profit Blue Cross/Blue Shield

plan; or it may be one of many alternative styles of coverage from a health maintenance
organization (HMO), a preferred provider organization (PPO), or some other financing

and delivery entity. Finally, it may resemble any of the above but be managed on a self-
insured basis by an employment group that "insures" its own risk rather than placing it
with a separate insurer.

"Such people generally have coverage for routine hospital stays and some physician

and other services as well, but not for very large medical expenses. At some point, their

uncovered bills become sizable compared with their income (especially if they cannot work),

and they become medically indigent. The best estimate of the extent of such problems

comes from 1977 national survey data indicating that 13% of the population under 65
was uninsured. Depending on the definitions applied, an additional 10 to 24% of the
under-65 population is w/zotennsured. The smaller figure consists of those who have at
least a 5% expectation of out-of-pocket expenses exceeding 10% of annual family income;
the larger figure includes all those whose insurance does not limit out-of-pocket hospital

expenses. Farley, Who Are the Underinsured? , 63 Milbank Mem. Fund Q. 476 (1985);
see also M. Sulvetta & K. Swartz, The Uninsured and Uncompensated Care 3, 19
(1986) (Tables 1 and 4).



860 INDIANA LAW REVIEW [Vol. 19:857

Americans are covered. After World War II, private health insurance
grew by leaps and bounds. Provided largely as a fringe benefit of

employment, private coverage was greatly encouraged by its exclusion

from income taxation and its inclusion as a subject of collective bar-

gaining.^^ In 1965, pubUc coverage took a quantum leap with the congres-
sional enactment of Medicare, largely for the aged, and Medicaid, for

the "deserving" poor, as defined by participating states. ^^ Coverage

continued to expand through the 1970*s, not only in terms of the number

of peojple covered but also in the breadth and depth of the benefits

provided; ^^ as a result, the number of uninsured people decHned.^^
In contrast, the early 1980's saw a rise in the number of people

without coverage,*^ for reasons considered below. As of early 1984, about
35 million people under age sixty-five, or about seventeen percent of

them, reported that they lacked health coverage at the time surveyed.

Most of them were probably uninsured for the full year, some for only
part of the year.*^

Table 1 shows the growth in the uninsured population between 1977

and 1984.

'^In 1945, only 32 million people were privately covered for hospital inpatient care;

by 1965, 139 million were. Health Ins. Ass'n. of America, Source Book of Health
Ins. Data, 1986 Update, Table 1.1, at 3. The average marginal "tax subsidy" for U.S.

workers has been estimated to exceed 3597o of premiums, C. Phelps, Taxing Health

Insurance: How Much Is Enough? (The Rand Corporation, Report P-6915, 1983), or
about 10*^0 of total private health insurance spending, Congressional Budget Office,

Containing Medical Care Costs Through Market Forces (May 1982). See generally
Pauly, Taxation, Health Insurance and Market Failure, 24 J. Econ. Lit. 629 (1986).

'^Social Security Act, tit. XVIII & XIX, 42 U.S.C §§ 1395, 1396 et. seq. (1982 &
Supp. 1985).

'"See Health Ins. Ass'n of America, supra note 12.
'^K. SwARTZ, Who Has Been Without Health Insurance? Changes Betw^een

1963 AND 1979 (Urban Institute, 1984).
'*M. SuLVETTA & K. SwARTZ, supra note 11, at 1, 3; see also Health Ins. Ass'n.

OF America, supra note 12.

''M. SuLVETTA & K. SwARTZ, supra note 11, at 3; see also K. Swartz, Interpreting
THE Estimates from Four National Surveys of the Number of People Without Health
Insurance: A Project Summary Report (Urban Institute, 1985). Surveys done in 1977
and 1980 compared those without coverage for the full year with those uncovered only

part of the year. About three-quarters of those uninsured at a single point in time were
uninsured all year; about 9% of 13%, for the 1977 survey. An additional 4% were
uninsured part of the year. See M. Sulvetta & K. Sw^artz, supra note 11, at 3; Friedman,
Health Insurance and Cross-Subsidization, Hospitals, Oct. 16, 1985, at 126. (interview
with Jack Hadley and Katherine Swartz). Most estimates of the uninsured exclude people
aged 65 and older because virtually all of them are now covered by Medicare, after the
expansions of recent years to include federal workers and others.



Millions of Percentage of

Uninsured Population

26.2 13.8<^o

26.0 13.7

28.6 14.6

30.7 15.2

32.7 16.1

35.1 17.1

1986] CARE FOR MEDICALLY INDIGENT 861

Table 1

Increases in the Uninsured over Time

(selected survey estimates, under age 65)

Year

1977

1978

1980

1982

1983

1984

(adapted from M. Sulvetta & K. Swartz, supra note 11, Table 1).

Why have the numbers of uninsured people climbed? One reason
is Medicaid cutbacks in eligibility, encouraged by recession-induced short-

falls in expected state revenues and required or encouraged by federal

welfare and Medicaid changes in 1981.'^ Medicaid now covers only about
forty percent of people below the poverty line.'^

The recession of the early 1980's also put many people at least
temporarily out of work and hence out of private health coverage as

well. 2^ Unemployment was especially high in heavy industry, hit by both

recession and intensifying foreign competition. Jobs lost in this sector,

traditionally the best insured area of the economy, often were not

regained, and replacement jobs in service and other industries were far

less likely to offer employer-paid health insurance.^'

'*See generally R. Bovbjerg & J. Holahan, Medicaid in the Reagan Era: Federal
Policy and State Choices (1982); J. Holahan & J. Cohen, Medicaid: The Trade-off
Between Cost Containment and Access to Care (1986). Medicare eligibility cutbacks,
in contrast, have been minimal, largely achieved through administrative revisions in disabiUty

standards.

"J, Holahan & J. Cohen, supra note 18. Medicaid covers about one-third of poor
adults, one-half of poor children. Id. at 47. However, for various reasons, about one-

third of Medicaid recipients have incomes above poverty levels. Conversely, the main

reason so many poor people are not covered under Medicaid is the program's categorical
nature; only certain categories of poor people can qualify. Notably, childless people and

intact families are generally ineligible. But see infra notes 237, 239. Cutbacks among even
eligible groups are also responsible. See J. Holahan & J. Cohen, supra note 18.

^^See, e.g.. Health Insurance for the Unemployed: Hearing Before the Subcomm.
on Health of the Senate Comm. on Finance, 98th Cong., 1st Sess. (1983); Staff of
Subcomm. on Health and the Environment of the House Comm, on Energy and
Commerce, 98th Cong., 1st Sess., Report on Health Benefits: Loss Due to Unem-
ployment (Comm. Print 1983).

^^See, e.g., K. Sw^artz, The Changing Face of the Uninsured (Urban Institute,
May 1984); Friedman, The Right Issue at the Wrong Time, CHA Insight, June 9, 1986,
at 1; Friedman, supra note 17, at 126-27; see also infra note 45.



862 INDIANA LAW REVIEW [Vol. 19:857

Moreover, even those who retained coverage at work in the 1980's
often have found their coverage cut back. Cutbacks have taken the form

of increased requirements for patient cost sharing, utiUzation review,

and the Hke,^^ as well as decreased employer payment of insurance

premiums, especially for dependents.^^

What explains the lack of insurance among non-poor working adults?
Obviously, their employers have not bought them insurance. Type of

employment also matters, especially size of employment group, because

insurance is much cheaper for large groups than for small ones or for
individuals.^"* Beyond workplace characteristics comes individual willing-

ness to pay for coverage; presumably nonbuyers either cannot afford

coverage that is attractive to them or they do not appreciate its value.

One of the most discouraging findings of recent surveys is that
households that contain at least one insured adult also contain many
uninsured dependents. In fact, one third of all uncovered children—over
3 million children—came from such households. ^^ Although direct caus-
ation is not established, presumably this lack of coverage reflects the

worker's choice not to pay the additional amount necessary to obtain

family coverage.^^

^^See, e.g., J. Califano, America's Health Care Revolution: Who Lives? Who
Dies? Who Pays? (1986); P. Fox, W. Goldbeck & J. Spies, Health Care Cost Man-
agement: Private Sector Initiatives (1984).

"5ee, e.g.. Bureau of Labor Statistics, U.S. Dep't of Labor, Employee Benefits

in Medium and Large Firms, 1985 (1986). Having to pay for dependents out of pocket,

with after-tax dollars, is a major disincentive to buying coverage, especially when that

coverage features increasingly higher deductibles and coinsurance.

^On economies of larger-scale insurance, see, e.g., Bovbjerg, Insuring the Uninsured
Through Private Action: Ideas and Initiatives, 23 Inquiry 403 (1986). On large versus
small employers, see, e.g., Moyer & Cahill, HHS Survey Illustrates Difference in Large,
Small Employers' Health Plans, Bus. & Health, Nov. 1984, at 50. Unfortunately for
insurance coverage, some two-thirds of new jobs are created in small firms, mainly in

the service industry. See, e.g.. In Praise of Pizza Parlours, The Economist, May 17,
1986, at 75. See generally Monheit, Hagen, Berk & Farley, The Employed Uninsured and
the Role of Public Policy, 22 Inquiry 348 (1985) (characteristics of employment that

affect coverage).

"Friedman, supra note 17, at 128.

2^Two other possible reasons for a decline in insurance coverage deserve brief mention.

For various reasons, the proportion of households headed by women has risen, and these
households are less likely than male-headed ones to have coverage, especially given Medicaid

acts. See id. at 128. Moreover, to an unknown extent, more individuals have probably
become "uninsurable" in the private market, especially outside of large employment group

plans. Such people include those with chronic conditions needing care or adverse medical

histories that put them at high risk of significant expense; they cannot get ordinary coverage

without major exclusions. See, e.g., Gottschalk, People with Chronic Diseases Often Find

Insurance Is Unaffordable—or Unavailable, Wall St. J., Aug. 12, 1986, at 29, col. 3.

This phenomenon is an unfortunate side effect of progress; medical treatment now saves
many who formerly would have died (e.g., through better emergency care or cardiac
resuscitation) but who now survive with an adverse health history. Additionally, medical



1986] CARE FOR MEDICALLY INDIGENT 863

Who are the uninsured? They fit no simple stereotype. Common
expectations are that the uninsured are exclusively poor, unemployed,

young, and nonwhite. Persons with any of those characteristics are indeed

at higher risk of being uninsured, as Table 2 shows.

Table 2

Some Characteristics That Put People at High Risk
OF Being Uninsured (1984)

Group Percentage Not Insured Relative Risk

Entire under-65

Population 15.2<yo 1.00

Unemployed Adults 33.6<7o 2.21

Income Below Poverty

Line 33.8% 2.22

Age 18-24 29.0<^o 1.91
Children Age 0-18
Below Poverty Line 34.1% 2.24

Blacks Age 18-64 25.0% 1.64
Never Married Males 30.6% 2.01

Married Female,

Spouse Absent 36.0% 2.37

Children in Single-Parent

Household 34.2% 2.25

Adults with No High
School Diploma 25.5% 1.68

(computed from M. Sulvetta & K. Swartz, supra note 11, passim).

But, in fact, most of the uninsured have family incomes at least somewhat

above the poverty line, are employed, are adults, and are white, as Table

3 shows. These people may thus seem less appeahng for consideration
as medical indigents; still, medical bills of a substantial size would clearly

throw most of these people into the medically indigent category.

diagnosis has improved physicians' ability to predict future problems and hence insurance

expenses; the most glaring example is screening for antibodies to the acquired immune

deficiency syndrome (AIDS) virus.



864 INDIANA LA W REVIEW [Vol. 19:857

Table 3

The Share of the Uninsured Contributed by Groups
WITH Certain Characteristics (1984)

Characteristic Percentages* of Under-65 Uninsured Who Are

Family Income Below Poverty 35.6%
(All Ages) 1 to 2x Poverty - 29.3%

2 to 3x Poverty - 15.4%

Over 3x Poverty - 19.7%

Employment Status Employed - 56.5%
(Adults, 18-64) Housekeeping - 15.2%

School - 7.2%

Unemployed - 12.1%

Unable to work,

early retirement - 8.9%

Age 0-17 - 33.0%
18-24 - 23.6%

25-44 - 27.4%

45-64 - 16.0%

Race (Adults) White - 79.3%

Black - 17.3%

Other - 3.5%

Percentages in each group may not add to 100.0% because of rounding,
(adapted from M. Sulvetta & K. Swartz, supra note 11, passim).

C. Problems Posed by Lack of Coverage

1. Poor Access to Care and Poor Health for the Uninsured.—
Uninsured people get less medical care, for a combination of reasons:

they seek less care on their own, they are referred less often for specialized

care or hospitalization, or they are turned away or otherwise discouraged

by some providers.^'' The uninsured are far more likely not to have a
regular source of care and much less likely to use medical services than
are the insured, as Table 4 indicates.

^^See Aday & Andersen, The National Profile of Access to Medical Care: Where
Do We Stand?, 74 Am. J. Pub. Health 1331 (1984); see also Davis & Rowland, Uninsured
and Underserved: Inequities in Health Care in the United States, 61 Milbank Mem. Fund

Q. 149 (1983); Robert Wood Johnson Foundation, Updated Report on Access to
Health Care for the American People (Special report no. 1, 1983). For a more rousing

portrait of the uninsureds' problems, see Dallek, Six Myths of American Medical Care:

What the Poor Really Get, Health/PAC Bull., May-June 1985, at 9.



90.0 47.0

4.8% 15.0%

17.1% 32.9%

9.7% 23.1%

1986] CARE FOR MEDICALLY INDIGENT 865

Table 4

How Insurance Status Affects Medical Care

Indicator of Medical Use Insured Uninsured

Physician visits per person under age 65 in 1977 3.7 2.4

Hospital patient days per 100 persons under age 65 in

1977

Families who needed care but did not receive it in 1982

Families who did not see a physician in 1982

People with no regular source of health care in 1982

(adapted from M. Sulvetta & K. Swartz, supra note 11, at 4 (citing Davis &
Rowland, supra note 27; Robert Wood Johnson Foundation, supra note 27)).

It is undocumented to what extent reduced access to care hurts the

health of the uninsured, but it is reasonable to assume that their health

does suffer. ^^ Thus, the uninsured are generally thought to be sicker

than the insured, a difference probably reflecting not only reduced medical

attention as such but also low income, inability to work, depression

from unemployment, and possibly other factors as well.^^

2. Uncompensated Care for Providers.—Much of the recent concern
over lack of health coverage derives from hospitals' fears of **uncom-

pensated care," which is a frequent result of treating uninsured persons. ^°

Uncompensated care consists of both charity care (provided to the

indigent with no expectation of payment) and "bad debts" (unpaid bills
of those expected to pay).^' In 1982, about five or six percent of total

hospital charges went uncompensated.^^ Because aggregate hospital charges

^See generally Mundinger, Health Service Funding Cuts and the Declining Health
of the Poor, 313 New Eng. J. Med. 44 (1985).

^'Empirical evidence on this point is weak. Cf. id. (loss of access to medical care
hurts health); Davis & Rowland, supra note 27, at 165-66 (15% of uninsured rate health
as fair or poor, vs. 11% of insured; sick uninsured have 4.1 physician visits annually,
vs. 6.9 for sick insured).

^°See generally Uncompensated Hospital Care: Rights and Responsibilities (F.
Sloan, J. Blumstein & J. Perrin eds. 1986) [hereinafter Uncompensated Hospital Care].

^'It does not include "contractual allowances" or "discounts" below charges or costs
that some hospitals give to some insurers' patients by virtue of participation agreements
(as for Blue Cross/Blue Shield plans in many areas) or special negotiations (as for "preferred
provider" arrangements under which hospitals trade a discount for more insured patients).
Sloan, Valvona & Mullner, Identifying the Issues: A Statistical Profile, in Uncompensated
Hospital Care, supra note 30, at 16.

"M. Sulvetta & K. Swartz, supra note 11 at 25; Sloan, Valvona & Mullner, supra
note 31, at 16, 19. The latter put 1982 uncompensated hospital care at $6.2 billion, or
5 percent of charges, and 6 percent of total receipts; using different survey data, the
former put the 1982 level at $7.5 billion.



866 INDIANA LAW REVIEW [Vol. 19:857

exceed costs or revenues, the percentage of uncompensated care is about

a percentage point lower when expressed as a fraction of hospital budgets. ^^

The burden of uncompensated care is not spread evenly across

providers. PubHc hospitals provide a vastly disproportionate amount of
uncompensated care (40.1^o of uncompensated charges, double their

19.0<^o share of total charges), as do major teaching hospitals (35.8%

of uncompensated charges vs. 24.09/o of total charges), and large city

hospitals generally (49.1% of uncompensated charges vs. 39.1% of all

charges). ^"^ Whether for-profit hospitals contribute their "fair share"

relative to similar not-for-profit community hospitals is hotly debated. ^^

It is not reliably known what share of uncompensated hospital care
goes to indigents. Charity is said to constitute about one third of

uncompensated care,^^ but there is no single accepted operational def-

inition of "charity care." Existing accounting practices allow hospitals

discretion in applying classification standards for charity care, and re-

ported charity varies by hospital. ^^ Thus, there is no guarantee that

reported hospital "charity" accords with social expectations or public

desires with regard to the medically indigent. ^^

How is "uncompensated care" financed? After all, institutions like
hospitals cannot give charity without themselves incurring costs. Indi-

vidual professionals can donate "free" personal attention, time, and

skill beyond normal working hours. But hospital care involves ancillary

services, supplies, or multiple personnel which must be paid for with

revenue from some source.
The conventional wisdom is that hospitals cross-subsidize nonpaying

"See supra note 32. According to data collected by the American Hospital Associa-

tion, this amount increases to 5.6% by 1984. See infra note 61.

^''M. SuLVETTA & K. SwARTZ, supro tiott 11, at 28, 31, 30.
''See generally For-Profit Enterprise in Health Care 97-126, 209-23, 225-32 (B.

Gray ed. 1986) [hereinafter For-Profit-Enterprise] (asserts that for-profit hospitals do

not contribute enough). But see Sloan & Becker, For-Profits v. Non-Profits: A Phantom
Issue, Tech. Rev., April 1984, at 11.

'^See, e.g., Cohodes, America: The Home of the Free, the Land of the Uninsured,
23 Inquiry 227, 228 (1986) (charity care comprises one-third of uncompensated care); see

also Sloan, Valvona & MuUner, supra note 31, at 19 (of 1982's $6.2 biUion in uncompensated
charges, hospitals designated $1.7 billion as charity, $4.5 bilHon as bad debt).

"For-Profit Enterprise, supra note 35, at 102; Sloan, Valvona & Mullner, supra
note 31, at 19. More defined descriptions do exist for Hill-Burton purposes. See infra

notes 121-31.

^*In fairness to hospitals, it must be noted that there is little consistency in public

programs' definition of indigency for purposes of eligibility determinations. One of few

existing uniform standards is that established by the federal Department of Health and

Human Services—belatedly, under pressure of repeated litigation—to measure hospitals'
adherence to Hill-Burton requirements to deliver "free" care to indigents. See For-Profit

Enterprise, supra note 35, at 102. See also infra notes 121-28 and accompanying text.



1986] CARE FOR MEDICALLY INDIGENT 867

patients largely with revenues earned from paying patients, especially

those who pay hospital charges (or whose insurers do), since charges
are higher than costs. ^^ Lesser sources of revenue include philanthropic

contributions, nonpatient revenues—both relatively minor for most hos-
pitals—and, mainly for public institutions, direct public subsidies from
tax funds/*^

Alternatively, a hospital can subsidize uncompensated care from its

own capital, incurring a deficit met largely by not funding depreciation.
This last option obviously hurts the long-run viabihty of an institution

and may impair its ability to raise operating capital as well. In 1980,
fully one-third of the hospitals that provided a high volume of care to

poor people were fiscally "stressed" in that they had deficits in operating

and total accounts. "^^

Little is known about what care the uninsured indigent receive outside
of hospitals, although it seems likely that non-hospital providers render

relatively less uncompensated care than do hospitals. ^^ For society at

large, hospital service comprises some forty-six percent of personal health
care spending (exclusive of public health activities, medical research, and

construction); the balance goes to physicians, other professionals, drugs,

nursing homes, and so on."^^ Hospitals, especially pubhc ones, are the

traditional "providers of last resort," and their legal obligations to

provide care are greater than those of other providers.'^'* Moreover,

hospital care is the most heavily insured, which traditionally has given

hospitals more "third-party" revenues from which to cross-subsidize
charity care.

^^5ee, e.g., For-Profit Enterprise, supra note 35, at 106-07; Phelps, Cross-Subsidies

and Charge Shifting in American Hospitals, in Uncompensated Hospital Care, supra

note 30, at 108. It is often argued that cost-paying "insurers," especially Medicare and

Medicaid, do not contribute to this shift. See, e.g., J. Meyer, Passing the Health Care

Buck: Who Pays the Hidden Cost? (1983).
'^"For-Profit Enterprise, supra note 35, at 100, Table 5.2, & 106 (public subsidy

of $1.9 billion in 1984).

"'Hadley, Mullner & Feder, The Financially Distressed Hospital, 307 New Eng. J.
Med. 1283 (1982). This study focused on hospitals for which uncompensated care plus

Medicaid constituted 24% or more of charges.
'*^The only estimates of non-hospital charity with which the authors are familiar

confirm this expectation. One estimate holds that physicians provided some $2.9 billion
of free care in 1982. See G. Bazzoli, Health Care for the Indigent: Literature
Review and Research Agenda for the Future (1985). But see F. Sloan, J. Valvona
& G. HicKSON, Analysis of Health Care Options in Tennessee: Uncompensated Care
(Vanderbilt Univ. 1985) (Tennessee doctors provided only one-seventh the amount of

uncompensated care as Tennessee hospitals).

''^Levit, Lazenby, Waldo & Davidoff, National Health Expenditures, 1984, Health
Care Financing Rev., Fall 1985, at 1, 9 [hereinafter National Health Expenditures] (in
1984, hospital care claimed $157.9 billion out of $341.8 of personal health care).

^See infra text accompanying notes 101-31.



868 INDIANA LAW REVIEW [Vol. 19:857

Uncompensated care is clearly a multibillion dollar problem for

hospitals, presumably a smaller one for other providers. It is likely to

have totalled about $10 bilUon in 1982 (assuming that two-thirds or

three-quarters of it occurred in hospitals). The volume of uncompensated

care has probably grown since then, as the next subsection discusses;

certainly, the pressures on hospitals have increased. "^^

D. Growing Problems

Recent developments have made access to insurance and care more
difficult for the medically indigent. Not only has the number of uninsured

grown through 1984 (Table 1), but it is likely to continue to rise in the

long run, despite a generally improved economy. A number of portents
point in this direction. First, the normal, "structural" level of unem-

ployment, below which the percentage of people looking for work is

not apt to fall, even in good times, seems to have risen above the

expected 3-4% of the 1970's to perhaps 5-6^^0 or more. Few of the
unemployed have employer-paid health coverage. "^^ Second, employment

patterns also seem to be undergoing a structural shift. To oversimpHfy,
the United States is moving from manufacturing to service jobs, from

unionized to nonunionized work forces, from mainly full-time to in-

creasingly part-time workers, and from large employers to smaller ones

—

all moves from well-insured types of employment to less well-covered

ones."^"^

Finally, the recent federal tax reform bilP reduces the incentives

for companies and workers alike to shelter income in tax-free benefits

like health insurance. Business in the aggregate will be paying considerably

more federal income tax (although at a lower official marginal rate),

which should make companies even more zealous about cutting corporate

"^Large as $10 billion may seem, it is not large in relation to some 31 million
uninsured people in 1982 {see supra Table 1). Per capita, that amounts to little more

than $300 for the year, far less than 1982's $1,184 per capita spending for the general

population. National Health Expenditures, supra note 43, at 16. It may be safely assumed
that this amount of charity care did not meet all the medical needs of the medically

indigent, given the extent to which the uninsured receive less care (see supra Table 4).

Meeting those needs on a prepayment basis would be substantially more costly. See infra
notes 257-58.

*^See supra note 20.

^'Black, Comment on "The Employed Uninsured and the Role of Public Policy,"
23 Inquiry 209 (1986); Monheit, supra note 24. Black's and Monheit's observations rest

mainly on 1977 data about employment and insurance coverage. Unpublished research on

changes in insurance status during 1980-86 by Stephen M. Long and Jack Rodgers of the
Congressional Budget Office disputes some of the details of these findings, arguing that
long-term structural changes do not explain the rapid rise in the number of uninsured in
the early 1980's.

^«Tax Reform Act of 1986, Pub. L. No. 99-514, 100 Stat. 2085; Summary of Con-
ference Agreement on H.R. 3838, Tax Notes, Sept. 8, 1986, at 985.



1986] CARE FOR MEDICALLY INDIGENT 869

health benefits than they have already been/^ Individuals will pay less

federal tax overall, and at lower marginal rates, especially at the high

and low ends of the scale. High-income and low-income taxpayers alike

will thus find tax-free health benefits considerably less attractive than

before, compared with the alternative of higher cash income.

At the same time, the cost of offering workplace health benefits
has been raised by numerous government requirements in the form of
'^mandated benefits," thus making insurance benefit packages richer for
some^^ and more available to others, including the recently unemployed
and divorced dependents.^' These developments are helpful in some regard
to those already in well-insured positions but, again, do not ease the

difficulties of the marginal company and its workers in attempting to
get affordable health coverage. All of these trends seem to indicate that

the future will see more people without health coverage, not fewer.
Meanwhile, uncovered people also seem to face even greater problems

in obtaining care—especially if they cannot prepay in cash, at least in
part. The main reason is that the ability of hospitals to cross-subsidize

care to the indigent seems to be declining. All providers, including

hospitals, face increased price competition from their competitors as well

as greater price resistance from their customers. Both developments have

adverse implications for the uninsured, at least in the short run."

Hospitals generally seem to manage the extent to which they provide
uncompensated care in order to match their fiscal capacity. ^^ It is safe

to assume that they will cut back if increased price competition threatens

their earnings or their ability to attract paying patients. Cutback strategies

will include choosing locations and services attractive to insured rather

than uninsured populations, avoiding services like obstetrics and emer-

gency treatment of trauma that often go uncompensated, and screening

out or transferring indigents or requiring deposits from them, at least
for non-emergency care.^"*

Although almost all hospitals provide some level of charity care, in
most locations the institutional provider of last resort, if one exists, is

the pubUc hospital. Anecdotal evidence indicates that the demand for

'^^See supra notes 22 & 23.
5°State laws regulating insurance have for a decade or more been altered to require

insurance plans to include mental health benefits, among others. One estimate is that

nearly 600 such statutes exist. Demkovich, Covering Options Through Mandated Benefits,

Bus. & Health, Jan. /Feb. 1986, at 27 (more than 580 laws at the end of 1984, requiring
coverage of everything from alcoholism services, in 38 states, to hospices, in 5 states,

with an almost equal number of new bills pending).

^^See infra note 207 on the federal "COBRA" entitlements allowing continuance as
a group member even after layoff, divorce, or other separation from the group.

"See, e.g., Kinzer, Care of the Poor Revisited, 21 Inquiry 5 (1984).

"Hadley, Mullner & Feder, supra note 41,
^For-profit Enterprise, supra note 35, at 104-05.



870 INDIANA LAW REVIEW [Vol. 19:857

public hospital care has risen, in part as a result of transfers from other

hospitals. ^^ At the same time, state and local governments that tradi-

tionally have funded public hospitals' net deficits (after collections from

Medicaid and other third-party payers) often have found themselves

under considerable fiscal pressure, in the aftermath of recession and the

"taxpayers' revolt. "^^ Indeed, a number of public hospitals have closed

since the late 1970's, perhaps most notably Philadelphia's," and there

is some movement toward "privatizing" others. ^^

For the future generally, some observers predict closures of as many
as one thousand of today's six thousand short-term general hospitals,

both public and private. ^^ The remaining hospitals will have to be more

concerned with competition for paying patients and less concerned about

indigent care (which raises prices). Thus, in the 1990's, it is quite possible

that the medically indigent will have less access to care than they do

now, unless there are changes in public policy.

As a political matter, it seems undeniable that hospitals—not the
indigent themselves—will continue to be largely responsible for making
"uncompensated care/indigent care" a legislative issue. ^^ The American

Hospital Association has recently completed a report on indigent care,

and almost every state has commissioned a task force on the topic. ^^

In this way, hospitals can provide an effective political voice for their

largely disenfranchised poor patients. ^^

For the moment, neither the administration nor the Congress seems

inclined to assist in finding solutions, certainly not solutions that require

^^See, e.g., Schiff, supra note 5.

'^See, e.g.. There's Life Yet in Tax Revolt, The Economist, Aug. 30, 1986, at 18.

"Reportedly, 111 nonfederal, short-term general hospitals, 19 of which were state

or local institutions, closed between 1980 and 1982. Sloan, Valvona & Mullner, supra
note 31, at 26.

^^Bovbjerg, Held & Pauly, Privatization and Bidding in the Health Care Sector, 6 J.
Pol'y Analysis & Mgmt. (1987) (forthcoming).

'^See, e.g., Mullner & McNeil, Rural and Urban Hospital Closures: A Comparison,
Health Aff., Fall 1986, at 131.

^See, e.g., Richards, Special Interests Push Indigent Care Solutions, Hospitals, Oct.

16, 1984, at 106.

^'American Hospital Ass'n, Cost and Compassion: Recommendations for Avoiding

A Crisis in Care for the Medically Indigent, Report of the Speclax Committee on

Care for the Indigent (1986). Most of the state studies consider their topic as much

"uncompensated care" as "indigent care." For a summary of state studies during 1982-

84, see J. Luehrs & R. Desonla, A Review of State Task Force and Speclu, Study
Recommendations to Address Health Care for the Indigent (1984) (responses of 21

states to survey); see also Nat'l Conf. of State Legislatures, 12 Questions: What
Legislators Need to Know About Uncompensated Hospital Care (undated, issued
1985).

"See, e.g.. Law, A Consumer Perspective on Medical Malpractice, 49 Law &
Contemp. Probs. 305, 307 (1986).



1986] CARE FOR MEDICALLY INDIGENT 871

new federal funding. ^^ As a result, states and localities are scrambling
to find new ways to bear the burden of financing care for the medically
indigent. ^"^ This Article next considers the legal obligations for providing

or financing care and concludes with an examination of state policy

options for aiding the medically indigent.

III. Legal Rights to Health Care or Coverage

A. Rights and Responsibilities

The supply of medical care for the medically indigent may be
diminishing, but there is no shortage of statements that medical care is

a basic human * 'right." Religious leaders, moral philosophers, politicians,
and even some judges have been heard from on this score. ^^ Existing
commentary on the subject is voluminous^^ and will not be reviewed
here. Many arguments about rights occur on an abstract, philosophical
plane. One underlying ethical-legal issue is whether society or medical

"In post-Gramm-Rudmann Washington, concern over reducing the massive federal

deficit seems to preclude new funding initiatives. The administration has repeatedly at-

tempted to cut existing indigent health programs like Medicaid, see R. Bovbjerg & J.
HoLAHAN, supra note 18, and community health centers, see G. Peterson, R. Bovbjerg,

B. Davis, W. Davis, E. Durman & T. Gullo, The Reagan Block Grants: What Have
We Learned (1986) [hereinafter G. Peterson]. Congress has protected the basic scope
of Medicaid and some other existing programs, but seems unwilling to fund new ones.

It will consider mandates for employer or state contributions, but not new federal taxes.

Thus, COBRA requires employers to offer group insurance continuation benefits. See
infra note 207. "Risk pool" legislation seriously considered but not passed would have

required states to help pay for "insurance of last resort" for the otherwise uninsured.

Access to Health Care Bill, S. 2402, 99th Cong., 2d Sess., 132 Cong. Rec. S5218 (1986)

discussed infra at note 290.

^See supra notes 7 & 61; infra note 136.
^^See, e.g.. The Labor Day Statement of Cardinal John J. O'Connor on "The Right

to Health Care" ("Every person has a basic right to health care which flows from the

sanctity of life and the dignity of human persons" (citing 1981 Pastoral Letter on Health
Care from American Catholic Bishops)), excerpted in Health/PAC. Bull., July/Aug.
1985, at 6-7; WiUiams, The Idea of Equality, in Philosophy, Politics, and Society 121-

22 (P. Laslett & W. Ronciman eds. 1962) (It is a "necessary truth" that "the proper
ground of [medical] treatment is need"); E. Kennedy, In Critical Condition (1972)

(especially Chapter 10, Good Health Care: A Right for All Americans); Memorial Hosp.
V. Maricopa County, 415 U.S. 250, 259 (1974) (dictum) ("[M]edical care is as much 'a
basic necessity of life' to an indigent as welfare assistance. And ... of greater constitutional
significance. . . .").

^See, e.g.. President's Commission for the Study of Ethical Problems in Medicine
and Biomedical and Behavioral Research, Securing Access to Health Care, Volume
Two: Appendices, Socioculture and Philosophical Studies (1983) (twelve articles on
access and right to it, each referencing various literatures); Fried, Equality and Rights
in Medical Care, in Implications of Guaranteeing Medical Care 3 (J. Perpich ed.
1975).



872 INDIANA LAW REVIEW [Vol. 19:857

providers owe the same care to all or whether charitable obligations are
limited to some "decent minimum" of care.^^ Legal and policy analysis
must consider how any such rights are determined and what, if any,
corresponding responsibility attaches.

The most fundamental right to health care would be one derived

from federal constitutional provisions. The constitutional authority of

the federal government to fund health care for the medically indigent

is indisputable,^^ and the federal-state Medicaid program is tangible

evidence of that authority.^^ The government may assume by statute an
obligation to fund medical care, but it has no general constitutional

duty to do so. For example, the government may cut back previously
offered Medicaid benefits^° and may refuse to fund certain care, even
care considered by some to be medically necessary.

The abortion cases well illustrate the distinction between a patient's

right to receive care and a public obligation to pay for it. A patient's
right to receive an abortion cannot be unduly restricted by government,

but this limited right carries no corresponding funding obligations.^'

Government may even deny funds for abortions while paying for similar
treatments under Medicaid or other programs. "^^

Two limited exceptions prove this rule. First, people involuntarily
confined to mental institutions may have a "right to treatment" grounded
in substantive due process or even in the eighth amendment's prohibition

of cruel and unusual punishment. A number of lower federal courts
have so held in cases of involuntary civil commitment.^^ The remedy
for institutionalization without adequate treatment is not easily framed.

^^Compare, e.g.. President's Commission for the Study of Ethical Problems in

Medicine and Biomedical Research, Summing up: Final Report on Studies of the

Ethical and Legal Problems in Medicine and Biomedical and Behavior Research

29-30 (1983) ("The Commission proposes a standard of 'an adequate level of care' for

all, not 'a right to health care' that offers patients access to all beneficial care, to all

care that others are receiving, or to all that they need—or want.") and Fried, supra note
66 ("decent standard of care for all") with, e.g., E. Kennedy, supra note 65 (especially

chapter 10, Basic Right of Access for All to Quality Care).

*^U.S. Const. Preamble ("promote the general welfare . . .").

^'Social Security Act, tit. XIX, 42 U.S.C. §§ 1396 et seq. (1982 & Supp. 1985).
^"Generally, states, rather than the federal government, are sued for implementing

cutbacks, because most cutbacks have historically been undertaken at state discretion rather

than by federal mandate. See. e.g., Alexander v. Choate, 469 U.S. 287 (1985) (Tennessee

cut of hospital coverage to 14 inpatient days held valid). In contrast, federal eligibility

cutbacks in 1981 received no judicial challenge.

^'Beal V. Doe, 432 U.S. 438 (1977); Roe v. Wade, 410 U.S. 113 (1973).
"Harris v. McRae, 448 U.S. 297 (1980).
''See, e.g., Wyatt v. Aderholt, 503 F.2d 1305 (5th Cir. 1974); Rouse v. Cameron,

373 F.2d 451 (D.C. Cir. 1966), appeal after remand, 387 F.2d 241 (D.C. Cir. 1967);

Wyatt V. Stickney: Retrospect and Prospect (L. Jones & R. Parlour eds. 1981). See
generally D. Wexler, Mental Health Law: Major Issues (1981).



1986] CARE FOR MEDICALLY INDIGENT 873

but courts generally require either deinstitutionalization, sometimes also

with treatment, "^"^ or improved institutional care, going beyond the merely

custodial.^^ Determining precisely what care is required and at what cost

proves rather difficult in practice.^^ The Supreme Court has given only
limited support to even this narrow concept of a right to mental health

treatment,^^ and the recent trend seems to disfavor such litigation. ^^

The second exception entitles incarcerated prisoners to adequate
health care. Traditionally, what little health care was available in jails

and prisons was very poor.^^ A series of lawsuits has established that
prison inmates must be given at least that level of care that prevents

their medical situation from being cruel and unusual punishment.^° Again,

precisely what level of care meets the constitutional minimum is not
clear, nor is the extent to which a prisoner must contribute toward his

own care.^^
These two exceptions are readily understood. Both institutionalized

mental patients and prisoners are individually made wards of the state.
It is an easy step to hold that the act of taking away their liberty (and
with it their capacity to help themselves or to seek private charity)

requires the government to give them in return a reasonable level of

medical care, along with humane treatment in other regards. ^^ These

^^Callahan v. Carey, N.Y.LJ., Dec. 11, 1979, at 10, col. 5 (N.Y. Sup. Ct. Dec.

10, 1979).

^^See, e.g., Wyatt v. Stickney: Retrospect and Prospect, supra note 73.

^^See id.; see also Miller, The "Right to Treatment": Can The Courts Rehabilitate

and Cure?, 46 The Public Interest 96 (1977).
''See, e.g., McNeil v. Director, Patuxent Inst., 407 U.S. 245 (1972) (holding that

the state of Maryland could not confine appellant indefinitely on basis of administrative

referral for observation under "defective delinquent" law; dictum noted remarkable rarity

of litigation to set "substantive constitutional limitations on this [civil commitment] power").

'^See, e.g., Jones v. United States, 463 U.S. 354 (1983) (civil commitment of convicted

criminal upheld despite not meeting standards for independent civil commitment); Young-

berg V. Romeo, 457 U.S. 307 (1983) (constitutional "right to habilitation" grounded on

deprivation of personal freedom and safety, not on extent of available medical treatment);

Pennhurst State School v. Halderman, 451 U.S. 1, 18 (1982) (poorly treated mentally

retarded patients not entitled to redress against the state under federal handicapped statute;

Congress did not intend to require states "to assume the high cost of providing 'appropriate

treatment' " in exchange for federal funds).

'^See, e.g., S. Goldsmith, Prison Health: Travesty of Justice (1975).

^^See generally Neisser, Inmate Welfare Funds: Reassessing Prisoner Assessments,

in Prisoners and the Law 16-1, 16-18 through 16-20 (I. Robbins ed. 1985); Neisser, Is
there a Doctor in the Joint? The Search for Constitutional Standards for Prison Health

Care, 63 Va. L. Rev. 921 (1977).

«'In City of Revere v. Massachusetts General Hospital, 463 U.S. 239 (1983), the

Supreme Court carefully refrained from deciding to what extent the hospital could collect

from the patient, who was granted bail while hospitalized with wounds received during
arrest, stating that this was a matter of state law. Id. at 245-46,

«2C/. Wyatt V. Aderholt, 503 F.2d 1305, 1312 (5th Cir. 1974) (treatment is "the

quid pro quo society [has] to pay as the price of . . . denial of individuals' liberty").



874 INDIANA LAW REVIEW [Vol. 19:857

exceptional cases do not support a fundamental positive "right to health

care," but there may be a fundamental negative right allowing a sort
of "free exercise." Thus, whereas certain aspects of medical practice

are subject to restrictions under licensure or economic regulation, ^^ courts

have recognized the importance of professional freedom^ and patients'

free choice,^^ even the choice not to receive care of any sort.^^

However, for the most part, the medically indigent have only those

entitlements that have been voluntarily enacted, in whole or in part, to

help them.^'^ Each statute—Medicare, veterans' coverage, maternal and
child health, and so on—carries with it greater or lesser entitlements to
a more or less defined population. The negative imphcation of each

program of special assistance is that no general federal obligation exists.

Beyond basic federal law, there are three other possible sources of

indigent rights. These are the duties of providers, of states and localities,

and of health insurers.

B. Obligations of Health Care Providers

1. Physicians, a. Duty to treat.—Although physicians may vol-
untarily provide charity care to the indigent, they have no affirmative

legal duty to do so. Like anyone else, physicians are free not to render

aid even in an emergency.^* Any assistance that a physician may gra-
tuitously render is considered the act of a "good Samaritan. "^^ This
same view has been echoed by numerous courts across the nation, and

stands unchanged by statute. ^'^

Most legal doctrine on the subject arises from malpractice law,
enforced through tort suits for damages. Doctors are remarkably free

of legal duty to treat anyone, paying customers and the impecunious

alike. The classic statement of this non-duty comes from Hurley v.

''See, e.g. Ind. Code §§ 25-22.5-1-1 et seq. (1982).

«^C/. Roe V. Wade, 410 U.S. 113, 163 (1973) (importance of noninterference with

doctors' judgment).

«^The malpractice rule that patients must give "informed consent" is based on the

importance of personal sovereignty. See generally J. Katz, The Silent World of Doctor

AND Patient (1984).
'"•In re Quinlan, 70 N.J. 10, 355 A.2d 647 (1976), is the seminal case. For a full

discussion, see President's Commission for the Study of Ethical Problems in Medicine

and Biomedical and Behavioral Research, Deciding to Forgo Life-Sustaining Treat-

ment: Ethical, Medical, and Legal Issues in Treatment Decisions (1983).

«^On federal medical programs, see generally F. Wilson & D. Neuhauser, Health
Services in the United States 137-228 (2d ed. 1982).

'^See Restatement (Second) of Torts § 314 comment c (1965).

'^State law typically protects such medical Samaritans from ordinary negligence actions.

See, e.g., Ind. Code §§ 34-4-12-1 to -2 (1982).
^See e.g.. Harper v. Baptist Medical Center-Princeton, 341 So. 2d 133 (Ala. 1976);

Childers v. Frye, 201 N.C. 42, 158 S.E. 744 (1931); Lyons v. Grether, 218 Va. 630, 239

S.E.2d 103 (1977).



1986] CARE FOR MEDICALLY INDIGENT 875

Eddingfield,^^ a turn-of-the-century case in which the Indiana Supreme

Court ruled that a physician had no duty to treat anyone. The court

saw no common law duty, even though the doctor was not otherwise
occupied, the would-be patient was very sick (he later died), was a

former patient of the refusing physician, and tendered payment in advance.

The court rejected any medical analogy with the common law duty of
innkeepers to serve all comers as well as the argument that the then recently

enacted state regulatory scheme of physician licensure had created such

a duty. This minimalist legal view of physicians' obligations to would-be

patients has long been an accepted tenet of organized medicine as well

as of the law.'^ The traditional rule that physicians are free to reject anyone

as a patient may have been tempered somewhat by civil rights legisla-
tion," but medical indigency is not a protected civil rights category.

A physician's legal duty to treat a patient arises only from mutual
consent—by express contract or by one implied by the parties' behavior.
Whether this contractual physician-patient relationship exists is a factual
question that turns upon whether the physician accepted the case and
whether the patient accepted the physician's professional services. ^"^ Under
certain circumstances, some courts have inferred a duty to treat even
absent specific consent. For example, an Arizona court ruled that a

physician on the staff of a hospital who agreed to be an "on-call"
emergency room doctor could no longer refuse treatment to an individual
seeking emergency care.^^ A New York court found a physician-patient
relationship based solely on a telephone conversation between a hospital
physician and an emergency room visitor, even though the physician
was said mainly to have directed the patient to see his own doctor. ^^

For the most part, however, mutual consent remains a requirement.

"156 Ind. 416, 59 N.E. 1058 (1901).

^^Am. Med. Ass'n, Principles of Medical Exmcs § 6 (1985); cf. Relman & Reinhardt,
An Exchange on For-Profit Health Care, in For-Profit Enterprise, supra note 35, at
209 (lack of duty to serve shows profit orientation of physicians).

"^^See generally Nat'l Health Law Program, Manual on State and Local Gov-
ernment Responsibilities to Provide Medical Care for Indigents 163-71 (M. Dowell

ed. 1985) [hereinafter State and Local Government Responsibilities] (Chapter IV,

"Access to Health Care and Civil Rights Legislation").

^"Lyons, 218 Va. 630, 239 S.E.2d 103; see also 61 Am. Jur. 2d Physicians, Surgeons,

and Other Healers § 96 (1972).
^'Hiser v. Randolph, 126 Ariz. 608, 617 P.2d 774 (Ariz. Ct. App. 1980), overruled

on other grounds, Thompson v. Sun City Community Hosp., Inc. 141 Ariz. 597, 688
P.2d 605 (Ariz. 1984) (The court in Thompson also distinguished Hiser on the issue of

the physicians' duty to treat in emergency situations). But see, e.g., Wilmington Gen.

Hosp. V. Manlove, 54 Del. 15, 174 A.2d 135 (1961); Richard v. Adair Hosp. Found.

Corp., 566 S.W.2d 791 (Ky. Ct. App. 1978). See infra discussion at notes 112-20 on

emergency care and duty to serve.

^O'Neill V. Montefiore Hosp., 11 A.D.2d 132, 202 N.Y.S.2d 436 (1960).



876 INDIANA LAW REVIEW [Vol. 19:857

b. Standard of care and extent of treatment.—Once a patient-phy-
sician relationship has been estabHshed, the physician must exercise the

same standard of care—customary skill and diligence^^—regardless of
whether the patient is an indigent or a paying customer. Even when

physicians render their services gratuitously, their potential liability for

negligence or malpractice remains the same as in treating any other

patient.
^^

Having once begun treatment, a physician must continue treatment

as long as medical care is necessary or face a possible malpractice action

for abandonment if actionable damage occurs. ^^ Physicians may safely
withdraw from a case only when services are no longer needed, when
the patient voluntarily terminates the relationship, when referral is made

to an equally qualified practitioner, or when the patient has a reasonable

opportunity to see another physician. '°°

2. Hospitals, a. Duty to treat.—As a general matter, private hospitals,
like physicians, have no legal duty to accept all potential patients seeking

care, except perhaps in emergency situations. ^°' Public hospitals, by

statute, by charter, or by tradition, generally are obligated to accept all

patients, at least in emergencies, '°^ but the ''right" of admission to public

hospitals for non-emergency cases is not absolute. ^°^

Even more than that of physicians, hospitals' discretion to refuse

patients is limited by civil rights provisions, '^'^ but in general, ability to

pay can be considered in deciding whether to treat. Indeed, absent an

emergency, a hospital may require a cash deposit as a condition of
admission. ^°^ Significantly, in only about half of the states are hospitals

'The classic article is McCoid, The Care Required of Medical Practitioners, 12

Vand. L. Rev. 549 (1959); see also A. Holder, Medical Malpractice Law 40-43, 53-
55 (1975).

"'See, e.g.. Rule v. Cheeseman, 181 Kan. 957, 317 P.2d 472, 477 (1957) (the fact

that the patient was a charity patient was immaterial in determining the surgeon's neg-

ligence); see also 70 C.J.S. Physicians and Surgeons § 52 (1951).

"""See, e.g., A. Holder, supra note 97, at 374-402.

'""Lyons v. Grether, 218 Va. 630, 239 S.E.2d 103 (1977); see also Annotation, Liability

of Physician Who Abandons Case, 57 A.L.R.2d 432, 439 § 3 (1958).
'°'See, e.g., Birmingham Baptist Hosp. v. Crews, 229 Ala. 398, 157 So. 224 (1934)

(physician in emergency room diagnosed child's advanced diphtheria and began treatment

but hospital denied admission because the disease was contagious; held no liability for

later death); Hill v. Ohio County, 468 S.W.2d 306 (Ky. 1971), cert, denied, 404 U.S.

1041 (1972) (pregnant woman had no right to hospital admission, absent emergency); see
also A. SouTHWiCK, The Law of Hospital and Health Care Administration 161-62
(1978).

'"^See Wilmington Gen. Hosp. v. Manlove, 54 Del. 15, 174 A.2d 135 (1961) (dictum

on public hospital duty); A. Southwick, supra note 101, at 162-64.

"^^See A. Southwick, supra note 101, at 163.

^'^See State and Local Government Responsibilities, supra note 93, at 163-71.

'°^Joyner v. Alton Ochsner Medical Found., 230 So. 2d 913 (La. App. 1970) (auto

accident victim given emergency treatment but refused admission).



1986] CARE FOR MEDICALLY INDIGENT Sll

legally required to have emergency rooms. ^^^

As with physicians, once a hospital begins to provide diagnosis and
treatment for an indigent patient, it is held to the same standard of

care as for any other patient. ^^^ Particularly when financial considerations
prompt an early discharge of a patient, the hospital may be found liable
for damages in a tort suit for abandonment. ^^^

However, tort actions constitute an abysmal enforcement tool for

achieving access to care. Only those emergency refusals that result in

compensable damages are normally actionable, and severe damage is
usually needed to justify the expense of a suit. Indigents are also

disadvantaged because their economic damages are likely to be low and

they may have poor access to legal assistance. ^°^ Moreover, if indigents
are receiving public assistance, they may not be allowed to keep much
of any recovery.

Malpractice doctrine is, therefore, of little help to indigents seeking

care."^ Indeed, if anything, malpractice law may actually hurt indigents'
access to private care, because offering any care may make a provider,
especially a hospital, liable to provide all needed care, perhaps entirely

without recompense. It is precisely this concern that presumably prompts
'*dumping."

One way to reduce the malpractice incentive to dump patients would
be to grant immunity from tort actions to providers that conform to

the coverage and utilization requirements of any applicable indigent care

program. The existing federal Professional Review Organization (PRO)
legislation provides such immunity with regard to the appropriateness

'°*About half of states directly or indirectly require certain categories of hospitals to

have emergency facilities. A. Southwick, supra note 101, at 183-84. See, e.g.. III. Ann.

Stat. ch. Ill 1/2, para. 86, 87 (Smith-Hurd 1977 & Supp. 1986) (private and public
hospitals providing general medical or surgical services); Pa, Stat. Ann. tit. 62, § 443.3

(Purdon 1986) (all hospitals receiving payments from Department of Public Welfare).

State and Local Government Responsibilities, supra note 93, provides a table of

emergency care laws; on tax rules, see id. at 489-90.

'"^Hospital Law Manual 1 1-3 (1981).
'°«See e.g., Meiselman v. Crown Heights Hosp., 285 N.Y. 389, 34 N.E.2d 367 (1941)

(hospital discharged patient when open wounds were still draining); Jones v. City of New

York, Hosp. for Joint Diseases, 134 N.Y.S.2d 779 (N.Y. Sup. Ct. 1954), rev'd on other

grounds, 286 A.D. 825, 143 N.Y.S.2d 628 (1955) (transfer of a stabbing victim who later

died was for hospital convenience rather than necessity and thus actionable).

•°^he last point is not self-evident, given free legal assistance as a free point of

entry and the wide availability of the private, contingent-fee personal injury bar. No direct

evidence on this point seems to exist. The only major empirical analysis of medical

malpractice, however, provides indirect evidence, that the incidence of claims does not

vary by differences in per capita income or in the proportion of people on welfare among

states. P. Danzon, Medical Malpractice: Theory, Evidence, and Public Policy 75

(1985).

"°See Law, supra note 62, at 306-15; Rosenblatt, Rationing "Normal" Health Care:
The Hidden Legal Issues, 59 Texas L. Rev. 1401, 1410-15 (1981).



878 INDIANA LAW REVIEW [Vol. 19:857

of treatment when Medicare has denied payment. ^^^ However, a broader
immunity provision could apply equally to coverage issues as well as to

issues of appropriateness. Under such a provision, a hospital would be
immune from suit if it failed to provide uncompensated care beyond
that covered under the indigency care program.

Of course, there are other ways to discourage providers from trans-
ferring patients, at least emergency patients, inappropriately. New federal
legislation specifically addresses inappropriate transfers.

b. Emergency room as a source of duty to treat.—Under 1986
federal legislation, hospitals that operate emergency rooms and that

participate in the Medicare or Medicaid programs must follow certain

protocols in assessment, treatment, and transfer of emergency patients

(including patients arriving in active labor). ^^^ The duty appHes to all

patients, not merely to public program beneficiaries. ^'^

This legislation was passed in response to growing concern over

refusals of care and "dumping" of patients on public facilities. ^'"^ Bas-
ically, affected hospitals must examine all patients and then either accept

them for full treatment or at least sta^bilize their condition so that they

can be safely transferred. UnstabiHzed patients may be transferred only
with their express consent or when the transfer is certified to be in their
own interest. ^'^ The federal act specifically states that it does not preempt
state rules except when they are plainly inconsistent with federal re-
quirements.'^^ Clearly the state remains free to enforce more stringent
standards.

The federal act was in many ways modeled upon landmark Texas
legislation that took effect the week before the federal action. ''"^ Under

the Texas law, a physician must examine all emergency patients within

'"42 U.S.C. § 1320c-6(c) (1982). This little known and little used provision was also

included in the predecessor PSRO legislation. It applies to Medicare, and to Medicaid as
well where the state elects to use the PRO to perform Medicaid review.

•'^Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272,

§ 9121, 100 Stat. 82, 164 et. seq. (COBRA, approved Apr. 7, 1986). Almost all hospitals

participate in one or both of these programs, and many have emergency rooms. See supra

note 106.

"The legislation's constitutionality might be challenged on the ground that no le-

gitimate purpose is served by requirements for non-Medicare persons as well as for Medicare

beneficiaries. In defense, one could argue that it is unwise, in emergency circumstances,

to make distinctions among various patients according to their insurance status.

'"•See supra notes 4 & 5.
"^Specifically, transfers before stabilization or during active labor may occur only at

the request of the patient or upon certification of the physician that the medical benefits

expected from transferring outweigh the risks of effecting the transfer. In addition, transfers

may be made only to facilities with available space and qualified personnel who have

agreed to accept the transfer and to provide appropriate medical treatment.

"^Consolidated Omnibus Budget Reconcilation Act of 1985, Pub. L. No. 99-272,

§ 9121, 100 Stat. 82.

"Texas Indigent Health Care and Treatment Act, Tex. Rev. Stat. Ann. art. 4438f

(Vernon Supp. 1986). See Chershov, Texas Transfer Law Still Spurs Controversy, Hospitals,
May 5, 1986, at 160.



1986] CARE FOR MEDICALLY INDIGENT 879

twenty minutes of their arrival. Patients are to be stabilized before any

transfer, and the receiving hospitals and physicians must agree to the

transfer.

In the absence of applicable statutory enactments, emergency treat-

ment and transfer is governed mainly by malpractice law. In this con-

nection, many state courts have held that operating an emergency room
creates a duty to treat emergency cases regardless of payment. *^^ However,

not all courts have accepted the emergency room exception to the general
no-duty rule,'^^ and some have rejected it.^^^

c. The Hill-Burton Act as a source of duty to treat.—In the past,
many hospitals have accepted federal capital grants or loans under the
Hill-Burton program. ^^^ The terms of these grants obligate hospitals to

provide a "reasonable volume" of free or below-cost services to persons

unable to pay for hospital care. Until the 1970's, it was unclear exactly

how much care hospitals were required to provide (i.e., what was a
^'reasonable volume") and to whom they were to provide it. In 1970,
a federal district court found that a private civil action could be implied

under the Hill-Burton Act because the Act was designed in part to

benefit directly those persons unable to pay for medical services. ^^^ Upon
review, the circuit court held that individual hospitals could not be

expected to supply all the services needed by indigents in their states. ^^^

Accordingly, the Secretary of Health, Education, and Welfare (now,

the Secretary of Health and Human Services) issued clarifying regulations
on what amount of uncompensated services provided by a hospital would

constitute comphance with the ''reasonable volume" requirement of the

Hill-Burton Act. Even with continued litigation in the 1970's and the

revised regulations,'^"^ the Hill-Burton Act has proven difficult to en-

force. '^^ Although the regulations and cases tend to interpret the Hill-

"«See e.g., Hiser v. Randolph, 126 Ariz. 608, 617 P. 2d 774 (Ariz. Ct. App. 1980);

Wilmington Gen. Hosp. v. Manlove, 54 Del. 15, 174 A.2d 135 (1961); Mercy Medical

Center of Oshkosh, Inc. v. Winnebago County, 58 Wis. 2d 260, 206 N.W.2d 198 (1973).

"^See, e.g., Campbell v. Mincey, 413 F. Supp. 16 (N.D. Miss. 1975) (dictum noting

that Manlove not universally followed; held, no emergency, so hospital not liable under

own rules).
^^^See, e.g., Perth Amboy Gen. Hosp. v. Board of Chosen Freeholders, 158 N.J.

Super. 556, 386 A.2d 900 (1978); Fabian v. Matzko, 236 Pa. Super. 267, 344 A.2d 569

(1975). Compare K. Wing, The Law and the Public's Health 234-45 (2d ed. 1985)
(hospital duty in emergency not settled law) with A. Southwick, supra note 101, at 185-

89 ("[m]ost observers" think holding that emergency room creates duty "should now be
accepted as the rule." Id. at 187).

'^'42 U.S.C. § 291(c)(e) (1982) (The Hospital Survey and Construction Act of 1946).

'^^Cook V. Ochsner Found. Hospital, 319 F. Supp. 603 (E.D. La. 1970), aff'd, 559

F.2d 968 (5th Cir. 1977).

'^'Cook, 559 F.2d at 971.

'^42 C.F.R. § 124.503 (1979).

'^^C/. Blumstein, Court Action, Agency Reaction: The Hill-Burton Act as a Case

Study, 69 Iowa L.Rev. 1227 (1984); Wing, The Community Service Obligation of Hill-
Burton Health Facilities, 23 B.C.L. Rev. 577 (1982).



880 INDIANA LAW REVIEW [Vol. 19:857

Burton Act as creating entitlements for specific classes of patients/^^ no

individual patient has a claim to free services. '^^ Furthermore, even though

the regulations define persons "unable to pay," each hospital may develop
its own plans for distributing charity care.^^^

Some $571 million of free care met Hill-Burton obligations in 1984,^^^

a figure well below the uncompensated care burden^ ^° and dwarfed by

apparent need. Even this amount of charity care is likely to diminish
in the future because Hill-Burton "free care" obligations normally last

for twenty years and the grant program was virtually eliminated in
1974.131

C Obligations of States and Localities
All states and a great many political subdivisions (counties, towns,

or cities) voluntarily provide or finance a variety of health services. The

largest program by far is the federal-state Medicaid program. Participating

states, by federal requirement, must cover certain categorically eligible

poor people and must provide certain mandatory benefits. Additional

coverage may be added at a state's option within the limits of federal
financial participation. ^^^ Medicaid's contribution to preventing medical

indigency is well known. Medicaid programs have by and large ceased

to expand to cover many additional people. ^^^ Consequently, this Article
does not further describe Medicaid at this point.

All levels of government provide many specialized health services
for the general population and general services for specialized populations.

Classic examples are treatment or immunizations for communicable dis-

eases and care for handicapped children. ^^^^ Poor people often receive

'^Blumstein, supra note 125.

'^^Newsom v. Vanderbilt Univ., 653 F.2d 1100, 1121 (6th Cir. 1981).

'2«42 C.F.R. § 124.507 (1979).

'^^State and Local Government Responsibilities, supra note 93, at 35.

'3°Sloan, Valvona & Mullner, supra note 31, at 19 ($1.7 billion of hospital-denominated
charity care is included in the $6.2 biUion of uncompensated care).

'^'U.S. Off. OF Mgmt. & Budget, The Budget of the United States Government,
Fiscal Year 1975, Appendix 415 (1974).

^^^See generally R. Bovbjerg & J. Holahan, supra note 18.
'"5ee generally J. Holahan & J. Cohen, supra note 18. An exception is limited

expansions targeted at needy children and young mothers, including expectant mothers,

authorized by 1986 federal legislation. See infra note 224.

'^^See generally F. Grad, Public Health Law Manual (1973); Role of State and
Local Governments in Relation to Personal Health Services (S. Jain ed. 1981) [here-

inafter Role of State and Local Governments] (reprinted from 71 Am. J. Pub. Health
1 (Supp. Jan. 1981)). State and Local Government Responsibilities, supra note 93, cites
statutory authority for many of these programs. The Association of State and Territorial
Health Officials (ASTHO), through its Public Health Foundation, publishes several annual

compilations of data on public health activities reported by 57 state health agencies and

estimated for some 3,000 local health departments. See, e.g.. Public Health Foundation,

1984 Public Health Chartbook (1986).



1986] CARE FOR MEDICALLY INDIGENT 881

particular emphasis in such programs, but they are not the focus. More-

over, this type of pubhc health activity tends to be quite restricted, both

in the scope of the care provided and in the level of financing made
available. ^^^ Consequently, this Article also skips over programs such as

these to consider in depth only direct efforts to curb medical indigency.

1. Sources of State Power to Provide Indigent Health Care.^^^—All
but three states either authorize or require state or county governments

to provide for
*

'relief and support" of the poor.'^^ Many of these laws
date from 19th century *'poor laws."^^^ The older statutes do not always

expressly mention medical care, but several have been interpreted to

cover at least some level of medical services. '^^ State authority to provide

or finance health care is derived from the general police power. ^"^^ Counties

(or other substate jurisdictions) have such power by virtue of delegation

from their states. ^"^^

2. Types of Local Indigent Health Programs.—Existing indigent
care programs can be divided into four different types: The first is the
public hospital model, most typically run by counties or cities, sometimes

with state aid. States using this approach operate hospitals themselves

or authorize counties to do so. These public hospitals are generally

required to serve the poor free or at a discount. ^"^^ In 1984, there were

'"In fiscal year 1984, for example, state and local public health spending totaled

some $6.5 billion. Public Health Foundation, supra note 134, Fig. 1. A few state health
agencies administer Medicaid in their states, but the latter expenditures are not included.

By way of comparison, federal-state expenditures for Medicaid in 1984 totalled $34.5

billion (provider payments only). J. Holahan & J. Cohen, supra note 18, at 9.
'^*The following discussion owes much to three legal and programmatic compilations

of information on assistance for the medically indigent. Butler, Legal Obligations of State

and Local Government for Indigent Health Care, in Academy for State and Local
Government, Access to Care for the Medically Indigent: A Resource Document
FOR State and Local Officlals 13-44 (R. Curtis & S. White eds. 1985) [hereinafter Aca-
demy] provides the most readable review. State and Local Government Responsibilities,

supra note 93, thoroughly documents existing programs from the perspective of legal enforce-

ment; it gives numerous state-by-state listings, extracts and commentaries. Inter-

governmental Health Policy Project, George Washington Univ., State Programs of

Assistance for the Medically Indigent (1985) [hereinafter IHPP] also gives state-by-state

profiles from the program point of view, as well as some fiscal data. This Article would

not have been possible without the kind of background provided by such data sources.

'"Kentucky, North Carolina, and Tennessee have no unit of government legally

responsible for indigent health care. Butler, supra note 136 at 17, Table I.

•38New Hampshire's General Assistance program, for example, originated from English

Poor Laws. Baker-Chaput v. Cammett, 406 F. Supp. 1134, 1137 (D.N.H. 1976). See also

R. Stevens & R. Stevens, Welfare Medicine in America (1974).
''^E.g., Jerauld County v. St. Paul-Mercury Indem. Co., 76 S.D. 1, 71 N.W.2d 571

(1955); see, e.g., Butler, supra note 136, at 16.

'""Jacobson v. Massachusetts, 197 U.S. 11 (1905); Industrial Comm'n v. Navajo
County, 64 Ariz. 172, 167 P.2d 113 (1946); Jerauld County, 76 S.D. 1, 71 N.W.2d 571.

^*^Jacobson 197 U.S. 11; F. Grad, supra note 134.

'"^States that have used this method include Arkansas, Colorado, Florida, Iowa,

Maine, Michigan, Missouri, Nevada, North Carolina, South Carolina, West Virginia, and

Wisconsin. Butler, supra note 136, at 19 n.25.



882 INDIANA LAW REVIEW [Vol. 19:857

some 1,622 state and local government hospitals, of a national total of

5,759 community hospitals. ^"^^ These hospitals are important not merely
for inpatient care but also for outpatient care in emergency rooms and

outpatient clinics, especially in the nation's large urban areas.

A second approach is for government to contract for indigent care
with specific private providers, mainly hospitals and community health
centers but occasionally individual practitioners as well. Several levels

of government may share financing. '"^ Contracting is common for pubUc
health and mental health services and is sometimes used for general

health care to the indigent. ^"^^ States that have used this approach include

Colorado, Delaware, Florida, Idaho, and Indiana.

The third and fourth methods are both more insurance-style medical
programs, under which eligible indigent enrollees can get specified services

from many providers, not merely one or a few contracting providers.
Model number three is a rather limited "vendor-payment" program
under which eligibles do not enroll in advance. Medical providers bill

the county or state for care to the indigent and are reimbursed at some

rate on a case-by-case basis. '"'^ The benefits available and the indigency

standards for such programs vary greatly from place to place. Often,

only hospital care is covered.

Model four is the more familiar style of insurance program that
resembles Medicaid or private insurance: Once eHgible persons enroll,
they may seek any covered service (typically well beyond hospital care)
from any participating provider. A few states provide full Medicaid
benefits to the medically indigent, wholly at their own expense, without
federal matching support. ^"^"^ More commonly, these insurance-style pro-
grams for indigent care are far more restricted than Medicaid, both in

'"^Am. Hosp. Ass'n, Hospital Statistics 7, Table 1 (1985) (data from 1984 survey).

An additional 700-odd institutions were federal or long-term hospitals. Although state and
local hospitals thus constituted 28% of the total, they contributed a smaller share of total
hospital beds, some 2097o in 1984. On public hospitals' contributions to indigent care, see
e.g., Dallek, The Continuing Plight of Public Hospitals, 16 Clearinghouse Rev. 97 (1982);

Feder, Hadley & Mulliner, Poor People and Poor Hospitals, 9 J. Health Pol. Pol'y &
L. 237 (1984).

"^Community health centers often receive a mix of federal block grant, state, and

local funding to supplement earnings from charges to patients and their insurers, if any.

See, e.g., G. Peterson, supra note 63; R. Price, Health Block Grants (1981).
'"'On pubhc health contracting, see, e.g., Jain, supra note 134. Iowa contracts with

the University of Iowa Hospitals and Clinics to provide non-Medicaid indigent health care

statewide. IHPP, supra note 136, at 139. For a list of citations to states using this

approach, see Butler, supra note 136, at 20 nn.28-30.

^'^^See Butler, supra note 136, at 28-30; State and Local Government Responsi-

bilities, supra note 93.

"•^Maryland's indigent care program is its Medicaid program, for example. IHPP,

supra note 136, at 157.



1986] CARE FOR MEDICALLY INDIGENT 883

benefits and in provider payment levels. ^"^^ Eligibility for these indigency

programs may be tied to receipt of state "general assistance*' (welfare),
just as Medicaid categorical eligibility is based on welfare (Aid to Families

with Dependent Children or Supplemental Security Income Assistance).

This subtype of insurance program is often called a "GA-medical"

program.''*^ Administrative and funding responsibilities for these insur-

ance-style programs are often shared among state and local authorities. '^^

This brief discussion illustrates how widely the method of providing
indigent care and coverage varies nationwide. In addition, the states

differ in the amount of discretion they give to the financing or admin-

istrative agency. Some programs provide little administrative structure
and few operational guidelines, whereas others are quite detailed and

specific, and their diversity is enormous. '^^

From the point of view of the otherwise uninsured medically indigent,
what matters about these state and local efforts is how much access to
care they provide. The medical access that a program achieves depends

on its legal requirements, the funding provided, and the administrative

discretion given to allow funding to be matched to indigents' require-

ments. The administrator's discretion may be guided only by general
statutory principles; or specific statutory or administrative provisions

may govern eligibility, benefits, and level of provider payments.
3. Nature of State-Local Duty.—Although almost all states have

statutes permitting publicly provided indigent health coverage or care,'^^

few seem to mandate such aid. It has been argued that two states'

constitutions require those states to provide for the poor, while three

others require counties and hospital districts to do so.^" But even these

apparent constitutional mandates are open to interpretation about the

nature of duty created. ^^'^ In addition to constitutional provisions, some

state statutes purport to impose duties on the state, ^^^ but these apparent

"mandates" seem binding only so long as the state voluntarily accepts

that duty. The state remains free to repeal a statute, even if by its terms

it does not seem to allow administrative or budgetary cutbacks. Thus,

'"^/c?. passim.

^'^^Id. at 26 (also called general relief, home relief, or poor relief).
'^"Butler, supra note 136, at 19.

'^'IHPP, supra note 136, at 67-292; see also State and Local Government Re-
sponsibilities, supra note 93.

•"See, e.g., La. Rev. Stat. Ann. § 40:2017 (West 1977) (state department of health
"may" provide for indigent care in private hospitals).

'"Butler, supra note 136, at 16 nn.8, 9 (citing Ala. Const, art. IV, § 88, Kan.

Const, art. 7, § 4, Mont. Const, art. XII, § 3(3), N.Y. Const, art. VIII, § 1 (states);
Tex. Const, art. 9, §§ 4,5,9. (counties or districts)).

''*See, e.g., Mont. Const, art. XII, § 3 (state must estabhsh institutions but only
such as the public interest may require).

'"See, e.g., Del. Code Ann. tit. 31, § 505(6) (1985) (general assistance program).



884 INDIANA LAW REVIEW [Vol. 19:857

it seems fair to conclude that there is no fundamental state right to

health care; some courts have so held.^^^
On the other hand, state statutory mandates on lesser jurisdictions

can be truly binding.'" Some state courts have interpreted even ostensibly
permissive statutes to mandate local government to fund care for the

indigent. The Arizona Supreme Court, for example, read two statutes
authorizing counties to care for the sick as imposing a duty to provide

medical care for the indigent sick.'^^ The obligation to provide some

variety of indigent medical care may even appear in a city charter'^^
and may apply even though an area is otherwise granted "home rule."'^°
In some thirty-seven states, counties or towns are to some degree re-

sponsible for indigent care (often shared among levels of government);
in four other states, counties are responsible for care only if they operate

county hospitals.'^'

Public hospitals are generally required to serve the poor at a discount

or at no charge. An interesting issue arises where administration of the
public hospital is contracted out to a private firm (as increasingly occurs

for cost containment reasons) or where the entire hospital is sold to

private interests. Of course, the private administrators or new owners
may be obligated by contract to provide some level of indigent care.
North Carolina has gone even further, enacting a provision requiring

both purchasers and lessees of public hospitals to continue indigent

care.'^^ In any event, enforcement of any such obligation may pose a
problem.'"

4. Extent of State-Local Duty.—Exactly what limits exist or may
be set on any public duty or undertaking to provide or finance care is

not settled by current case law.'^"* If a provision is not mandatory, the

government can revoke it by ceasing to provide or to finance care.

^^^See, e.g., Mary Lanning Memorial Hosp. v. Clay County, 170 Neb. 61, 101 N.W.2d

510 (1960).

'''See. e.g., Ind. Code §§ 12-2-1-1 through -39 (1982 & Supp. 1986) ("Township trustee
must promptly provide medical and surgical attendance for all the poor . . , not ... in

public institutions.").

'=«Industrial Comm'n v. Navajo County, 64 Ariz. 172, 167 P.2d 113 (1946); see also
Memorial Hosp. v. Maricopa County, 415 U.S. 250, 252 (1974) (notes "mandatory" duty

of counties).

^'^See, e.g., F. Grad, supra note 134.

'"^See, e.g., Ill Ann. Stat. ch. 34, para. 5011-5029 (Supp. 1986) (Cook County is

obligated to finance care for poor).

'^'Calculated from Butler, supra note 136, at 17, Table I. See also State and Local

Government Responsibilities, supra note 93.
'"N.C. Gen. Stat. § 131E-13 (Supp. 1985).

'"Andrulis, Survival Strategies for Public Hospitals, Bus. & Health, June 1986, at
31, 34.

'^^Interestingly, most cases are brought not by the poor themselves but by hospitals

that have provided care to indigents and are requesting compensation for that care.



1986] CARE FOR MEDICALLY INDIGENT 885

Courts generally will not obligate a government to undertake a function

that is permissive rather than mandatory. '^^

Occasionally, a state or county may operate an indigent health care
program simply by appropriating funds without a statutory mandate or

even express statutory authority. When such appropriated funds are
exhausted, the state or local agency would seem to have no lingering

obHgation to continue covering care for the indigent. '^^

Where specific statutory language governs indigent care, budgetary
discretion may be more circumscribed. Programs vary widely in the
discretion granted to control the scope of support through ehgibility,

benefits, and payment provisions. For example, Iowa gives its county

boards of social services broad control over the form and amount of

support. ^^^ CaUfornia also gives broad discretion to its county supervisors

to determine eligibility for, amount of, and conditions attached to indigent

rehef.'^^ However, a county's exercise of discretion must remain consistent

with the language and purpose of California's General Assistance statutes. '^^

Other states have given local authorities much less discretion. For ex-
ample, Michigan's GA-medical program sets very precise standards and

fixes the local share of resultant spending. '^° Even when counties are

given broad administrative discretion, state courts have held that county

regulations must bear a reasonable relationship to the intended purpose

of the state statute.

A county's obligation to deliver indigent health care does not nec-
essarily change if the state establishes an additional program, such as

Medicaid. '^^ Similarly, establishing a public medical facility within the

county does not necessarily relieve the county's responsibility for indigent

care rendered elsewhere. The Nevada Supreme Court, for example, held
a county responsible for emergency care rendered at a private hospital

even though the county operated its own facility. ^^^ In contrast, California
courts have held that counties were responsible only for care given at

'"See, e.g., Perth Amboy Gen. Hosp. v. Board of Chosen Freeholders, 158 N.J.
Super. 556, 386 A.2d 900 (1978) (statute which authorized counties to make payments to
hospitals providing care to indigents did not require counties to do so).

^^See generally Butler, supra note 136, at 18.

'^^Collins V. Hoke, 705 F.2d 959 (8th Cir. 1983).

'^«City & County of San Francisco v. Superior Court, 57 Cal. App. 3d 44, 47, 128
Cal. Rptr. 712, 714 (1976).

'*'Bay Gen. Community Hosp. v. County of San Diego, 156 Cal. App. 3d 944, 203
Cal. Rptr. 184 (1984); Patten v. San Diego County, 106 Cal. App. 2d 467, 235 P.2d 217

(1951).

''"Mich. Comp. Laws Ann. § 400.66a (West 1976); see IHPP, supra note 136, at
171-74.

'^'Madera Community Hosp. v. County of Madera, 155 Cal. App. 3d 136, 201 Cal.
Rptr. 768 (1984); Hall v. County of Hillsborough, 122 N.H. 448, 445 A.2d 1125 (1982).

'^^Washoe County v. Wittenberg, 100 Nev. 143, 676 P.2d 808 (1984).



886 INDIANA LAW REVIEW [Vol. 19:857

a county facility or by a provider already under contract with the

county.'"'^

5. Funding Limitations and Obligations.—The state of Washington
statutorily limits public obligations to the appropriated amounts/^"^ whereas

Ohio positively obligates the county to appropriate needed funds. ^^^ Some
states have given counties specific authority to levy taxes in order to

care for the indigent. Idaho, for example, allows counties to levy an

ad valorem tax on property. '^^ Nevada allows indigent health spending

to raise county property taxes above an otherwise binding ceiling per-

centage on assessments. ^^^ A public hospital or cHnic or a private con-
tractor may simply reach the limit of its resources and then shut down
certain services or turn away certain people (or postpone serving them).
Presumably, in so doing, it would use accepted principles of medical

triage, serving the medically neediest first. Whether a disappointed patient

or the provider can then sue the responsible jurisdiction(s) for more

than the budgeted funds is not clear. ^^^ Presumably, a great deal would

turn on the precise statutory wording of the institution's duty and the

extent of discretion authorized.

6. Specific Terms of Assistance.—Any program of medical assist-
ance requires some operating definitions as to (a) eligible recipients, (b)

benefits available (including which providers and what services are cov-

ered), and (c) payment levels. As for other aspects of program admin-
istration, local administrators generally are given broad discretion, although

courts have sometimes hmited the exercise of this discretion. '"^^ For

example, a New Jersey court held that a municipality must conform to
statewide rules and regulations of public assistance. *^^ In a case from

'''Bay Gen. Community Hosp., 156 Cal. App. 3d 944, 203 Cal. Rptr. 184; Union

of Am. Physicians & Dentists v. County of Santa Clara, 149 Cal. App. 3d 45, 196 Cal.
Rptr. 602 (1983).

'^^Wash. Rev. Code Ann. § 74.09.035 (Supp. 1987); see also Ga. Code Ann. § 31-

8-36(b) (1985).

'"St. Thomas Hosp. v. Schmidt, 62 Ohio St. 2d 439, 406 N.E.2d 819 (1980); Ohio

Rev. Code Ann. § 5101.161 (Anderson Supp. 1985).

'^^IDAHO Code § 31-3503 (1983); see also Idaho Falls Consol. Hosp. Inc. v. Bingham

County Bd. of County Comm'rs, 102 Idaho 838, 642 P.2d 553 (Idaho 1982).

'^^Nev. Rev. Stat. § 428.050 (1985).

''«Some courts have held that counties may not be liable for indigent health care

beyond their budgets. See, e.g.. Board of Directors of Memorial Gen. Hosp. v. County

Indigent Hosp. Claims Bd., 77 N.M. 475, 423 P.2d 994 (N.M. 1967); Board of Comm'rs

V. Ming, 195 Okla. 234, 156 P.2d 820 (1945); Cache Valley Gen. Hosp. v. Cache County,

92 Utah 279, 67 P.2d 639 (1937). Other courts have held that obligations must be met

even if they exceed the county's budget hmitations. City & County of San Francisco v.
Superior Court, 57 Cal. App. 3d 44, 128 Cal. Rptr. 712 (1976); Hall v. County of

Hillsborough, 122 N.H. 448, 445 A.2d 1125 (1982).

""^See supra text accompanying notes 167-70.

•«°Ricker v. Lawson, 155 N.J. Super. 536, 382 A.2d 1183 (1977).



1986] CARE FOR MEDICALLY INDIGENT 887

New Hampshire, a United States district court held that a town must
administer its assistance program pursuant to written, objective, and

ascertainable standards. ^^^

To determine eligibility, administrators of indigent health care must
define "indigent." The majority of states do not provide a definition

within the statute itself, although some statutes include a very general
definition. For example. New Hampshire defines those who are entitled
to free health care as those who are "poor" and unable to support
themselves. ^^^ Idaho defines the medically indigent as "persons needing

hospital care without income or resources sufficient to pay for necessary

medical care."'^^ Some states have included within their statutes more
precise definitions of "indigent." Arizona, for example, estabUshes spe-

cific income and resource standards. '^"^ Oklahoma defines an indigent as
a person with income under the federal poverty level, with resources

insufficient for self care, and with a need for hospital care.'^^

Where statutes have provided no definition of indigency or only a
general definition, state courts have often played an active role in

interpreting the statute. The Supreme Court of Montana, for example,

held that the counties must have flexible eligibility standards that take

into consideration not only income but also family debts and outstanding

medical bills. ^^^

In defining indigency, most state statutes contain residency or cit-

izenship requirements. However, in 1974, the United States Supreme

Court held that an Arizona statute requiring a year's residence in a

county as a condition of indigent care was unconstitutional under the

equal protection clause. '^^ Since this ruHng, several state courts have

invalidated other similar durational residency requirements. More recent
statutes simply require the indigent to be domiciled in the state with an

intent to reside there. '^^ This type of residency requirement would seem

to answer the equal protection concerns stated by the Supreme Court. '^^

'^Baker-Chaput v. Cammet, 406 F. Supp. 1134 (D.N.H. 1976).

'«2N.H. Rev. Stat. Ann. § 165:1 (Supp. 1986).

'^^IDAHO Code § 31-3503 (1983).
'«^Ariz. Rev. Stat. Ann. § 36-2905 (Supp. 1986).

•«'Okla. Stat. Ann. tit. 56, § 58 (West Supp. 1987).

'«^Saint Patrick Hosp. v. Powell County, 156 Mont. 153, 477 P. 2d 340 (1970); see

also Hall v. County of HUlsborough, 122 N.H. 448, 445 A.2d 1125 (1982); Sioux Valley

Hosp. Ass'n V. Davison County, 319 N.V^.2d 490 (S.D. 1982).

'^^Memorial Hosp. v. Maricopa County, 415 U.S. 250 (1974).

'^^See, e.g., Mont. Code Ann. § 53-3-315 (1985).
'^^In 1982, the United States Supreme Court held unconstitutional a Texas statute

which prohibited illegal aliens from enrolling in public schools. Plyler v. Doe, 457 U.S.

202 (1982). This case would seem to indicate that states could not deny indigent health

care to undocumented aliens. However, language in the opinion can be interpreted as

limiting the holding to educational rights of minor children.



888 INDIANA LA W REVIEW [Vol. 19:857

States have differed in their treatment of undocumented aliens. The New
Mexico Supreme Court held undocumented aliens were "residents" for

purposes of the indigent care statute. '^° However, a California court

recently held that counties were not required to reimburse private hospitals

for care of undocumented aliens because the statute required indigents

to be "lawful" residents. ^^^

Most state statutes do not specify which providers or what services
are covered under their indigent health care laws.^^^ Thus, the counties

often have considerable discretion in determining the type of care covered

and who may be paid as providers. Although state courts generally have
upheld this broad discretion, California courts have held that a county

has no obligation to pay for indigent care delivered at a facility other

than its own or one with which it has contracted. ^^^ In contrast, the
Idaho Supreme Court required an Idaho county to pay a hospital that

was neither under contract nor even within the state. ^^"^ (The case involved

an Idaho resident's going to nearby Salt Lake City, a logical and common
pattern; query whether more distant hospitals would be paid.) Even those

states that require a contractual relationship with the provider often

allow recovery by noncontractors in emergency situations. ^^^

The particular services covered by indigent health care programs also

vary widely from state to state. '^^ Most state indigent statutes cover at
least emergency care. Some states cover a broader range of health care
needs. Arizona, for example, provides for hospitalization and medical

care, including long-term care and home health services. ^^^

Judicial interpretations of coverage provisions have been important.

The Indiana courts, for example, have construed an Indiana provision

that covers indigents suffering from a "disease, defect, or deformity"

to exclude normal pregnancy. '^^ In a later case interpreting the same

'^Perez v. Health & Social Servs., 91 N.M. 334, 573 P.2d 689 (1977).
'^'Bay Gen. Community Hosp. v. County of San Diego, 156 Cal. App. 3d 944, 203

Cal. Rptr. 184 (1984).

'^^See, e.g., Cal. Welf. & Inst. Code § 17000 (West 1980); Cal. Gov't Code

§ 29606 (West 1968). California's statute directs counties to "relieve and support" the

incompetent, poor and indigent, and "necessary expenses" incurred in this support are

charged to the county. See also Neb. Rev. Stat. § 68-104 (1984). Nebraska's statute

directs counties to provide "medical and hospital care" to "the poor".

'""'E.g., Bay Gen. Community Hosp. 156 Cal. App. 3d 944, 203 Cal Rptr. 184.

'^"University of Utah Hosp. & Medical Center v. Bethke, 101 Idaho 245, 611 P.2d
1030 (1980).

'^^County Dep't of Public Welfare v. Trustees of Indiana Univ., 145 Ind. App. 392,

251 N.E.2d 456 (1969); Washoe County v. Wittenberg, 100 Nev. 143, 676 P.2d 808 (1984).

'^See generally IHPP, supra note 136, at 67-292 (state-by-state profiles).

"^Ariz. Rev. Stat. Ann. § 11-291 (Supp. 1986).

'9»Lutheran Hosp. of Fort Wayne, Inc. v. Department of Public Welfare, 397 N.E.2d

638 (Ind. Ct. App. 1979) (construing Ind. Code § 12-5-1-1 (1982)).



1986] CARE FOR MEDICALLY INDIGENT 889

Statute, an Indiana court held that a county may not restrict the number
of inpatient days.^^^

Few indigent care programs set the type of particularized limits or
conditions on services that have become common in conventional private
group health insurance and in Medicaid, such as pre-admission screening

for nonemergency hospital admissions.^^ Indigent programs that are

integrated with Medicaid present an exception.^^^ Thus, the validity of

controls of this kind seems not to have been litigated.

Program specifications, or the lack thereof, also govern payment
levels, an important indirect influence on access to care. Medicaid-

integrated programs generally pay Medicaid rates, and contractual prov-

iders receive the contracted-for amounts. Many older-style indigent ven-
dor-payment programs, however, pay hospitals flat, per-day amounts.^°^

Two older state statutes oddly prohibit price setting through bids^^^

—

quite contrary to recent innovations in practice, notably in Arizona and

California. ^^"^ One early Nebraska case disqualified counties' prepayment
for services as

*

'insurance, "^°^ but this holding seems obsolete in light

of recent trends toward prepayment in Medicare and Medicaid.

Most states or counties have established varied procedural require-

ments that providers or patients must follow to receive payment for

indigent health care. Many states require prior governmental approval
or a contractual agreement before a provider renders care to an indigent.

However, this requirement may be waived in emergency situations. ^°^

'^Welborn Memorial Baptist Hosp., Inc. v. County Dep't of Public Welfare, 442

N,E.2d 372 (Ind. Ct. App. 1982).

^^See, e.g., J. Califano, supra note 22; P. Fox, W. Goldbeck & J. Spies, supra
note 22; J. Holahan & J. Cohen, supra note 18.

^"'Maryland, for example, simply includes indigents not eligible for federal Medicaid

assistance within the same state-federal Medicaid program, but wholly at state expense.

See IHPP, supra note 136, at 157-59.

^^See, e.g., Massachusetts Gen. Hosp. v. Cambridge, 347 Mass. 519, 198 N.E.2d

889 (1964) (hospital rate for voluntarily treated indigents is purely statutory and can be

below actual incurred expenses); Del. Code Ann. tit. 29, § 7204 (1983); see also Springfield

Hosp. V. Comm'r of Public Welfare, 350 Mass. 704, 216 N.E.2d 440 (1966) (hospital rate
for old age assistance patient below actual cost is valid; hospitals are "greatly affected with

the public interest" and have a "civic obligation" to serve patients),

^^CoNN. Gen. Stat. Ann. § 17-274 (West Supp. 1986); Utah Code Ann. § 17-5-

55 (Supp. 1986).

^See, e.g., J. Christianson & D. Hillman, Health Care for the Indigent and
Competitive Contracts: The Arizona Experience (1986); L. Johns, R. Serzan & M.
Anderson, Selective Contracting for Health Services in Californla, Final Report

(1985).

^^Hustead v. Richardson County, 104 Neb. 27, 175 N.W. 648 (1949) (counties not

authorized to engage in business of insurance).

2o*University of Utah Hosp. & Medical Center v. Bethke, 101 Idaho 245, 611 P.2d
1030 (1980).



890 INDIANA LAW REVIEW [Vol. 19:857

D. Obligations of Private Health Insurers

Would-be insureds have no general legal right to private health

coverage, and there is little tradition of providing free or below-cost

insurance as there has long been for providing hospital care. Insurance

is a private contract, only partially regulated, available to those who
can afford it and not to others. Several quahfications to this "no rights"
generalization deserve mention.

First, if workers or their dependents are covered through a workplace

group and they cease to be group members, because of layoff or wid-

owhood, for example, they are entitled to continue on the group policy

at their own expense for a certain period. ^^"^

Second, in most states, Blue Cross/Blue Shield plans in theory must

allow open enrollment in their nongroup plans. ^^^ This is one regulatory

stricture that can be seen as a pubUc quid pro quo for granting the

Blues tax exemption. Moreover, such nongroup Blues rates may be kept
low by direct or indirect subsidy from the Blues' group business if their

group market share is strong enough to permit this;^°' they also often use

a version of "community rating" principles. Community rating charges
all insureds in a large pool the same price (based on the pool's average

cost), rather than basing rates on the specific experience of subgroups.

PooHng experience arguably helps the poorest and sickest, whose ex-

perience is the worst, at the expense of lower-risk insureds. ^^°

Finally, ten states now guarantee otherwise uninsurable people the
right to conventional insurance at a subsidized rate.^'^ Coverage is rea-

^°^This "continuation" privilege (or the ability to "convert" to a relatively generous

individual policy) arose first through industry custom, then through state and federal law.

On custom, see Health Ins. Ass'n of Am., Group Health Insurance 1-17 (1976); for
state rules as of Spring 1985, see IHPP, supra note 136, at 294-95; for new federal rules

from COBRA legislation, extending the right to coverage to a period up to three years
in some cases, see Bovbjerg, supra note 24, at 405-06 nn. 12 & 13.

"^^See, e.g., Ind. Code § 27-8-11-3 (Supp. 1986). It is thought that in recent years,

the Blues' commitment to open enrollment has waned under competitive pressure. Cf.
U.S. Gen. Acct. Off., Pub. No. HRD-86-110, Health Insurance: Comparing Blue Cross

AND Blue Shield Plans with Commercla.l Insurers (July 1986) (Blues' differences from

commercials described as minor).
^"'In Massachusetts, for example, by order of the Insurance Commissioner, one percent

of group premiums helps defray nongroup expenses. Indirect subsidies may be achieved

by regulatory accounting rules that attribute the same administrative loading factor to

group coverage as to nongroup, when in fact group practice could normally be expected

to achieve economies of scale in sales and operations. Cf. Bovbjerg, supra note 24, at

409.

2'°Under competition from more experience-rated policies, largely in the group market,

community rating pools tend to fragment, as low-risk groups insure on their own rather

than remain in the community pool. For a description of how such competition ended

early community rating in the group market, see P. Starr, The Soclal Transformation

OF American Medicine 329-31 (1982).
^"In one of the ten, Connecticut, the pool is not restricted to persons rejected by

conventional insurers. See Bovbjerg & Koller, State Health Insurance Pools: Current



1986] CARE FOR MEDICALLY INDIGENT 891

sonably generous by non-group standards, but enrollments are very low,

even as a fraction of the tiny percentage of uninsurables.^^^ Even with

considerable subsidy, policies cost 150% or more of the price of standard
coverage.

These various insurance rules all help would-be insureds, but do

require them to pay for their own coverage, albeit at relatively favorable
rates. Thus, they probably do not reach many or most of the medically
indigent, who are relatively poor or unemployed or both. They may,
however, help prevent medical indigency among the nonpoor caused by
large medical bills that exceed ability to pay.

One common type of state insurance regulation tends to make in-
surance relatively less affordable, namely

*

'mandatory benefits" rules

that require all health insurance policies to cover certain services, notably

mental health care. Mandated benefits "upgrade" insurance protection

for those who can afford it, but disproportionately burden poorer insureds
and their employers and tend to make it more difficult for those less

able to pay to buy any coverage at all.^'^

IV. Private and Public Approaches Toward Improvement

A. Introduction: Where We Stand

The problems of the uninsured and of the uncompensated care they
generate are increasing. Legally, there is tenuous support for a right to

care or coverage in the constitutional or statutory sense, as just noted.

Most of the obligations are conditional: that is, if a provider, an insurer,

or the government assumes to provide care or coverage for someone,

then it must provide care or coverage of a certain standard. In any

event, this branch of the law appears to be poorly developed in terms

of the jurisprudence of rights. Indeed, for the most part, cases on

indigent coverage do not even cite one another. As a result, the body
of case law provides little guidance.

Performance, Future Prospects, 23 Inquiry HI (1986) (experience of six pools operating
before 1984). The states are Connecticut, Florida, Indiana, Iowa, Minnesota, Montana,

Nebraska, Ohio, Rhode Island, Tennessee, and Wisconsin. As of late 1986, ten states
now have risk pool legislation, according to the National Governors' Association. G.
Claxton, Concept Paper: Facilitating Health Care Coverage for the Working
Uninsured 14 (Nat'l Governor's Ass'n, Pre-Conference Draft, Dec. 1986).

^'^Bovbjerg & Koller, supra note 211. About one percent of the population is thought
to be uninsurable. Id. See also supra note 26 and accompanying text.

^^^See Demkovich, supra note 50. Such rules disproportionately burden small group

and nongroup coverage because large workplace groups very often "self-insure" precisely

so as to escape such state insurance mandates and achieve other economies. See Bovbjerg,

supra note 24, at 408. Over half of large employment groups are now thought to self-
insure. See infra note 273.



892 INDIANA LAW REVIEW [Vol. 19:857

Any effective solution will require at least some government in-
volvement, although the nature of that involvement may vary considerably
according to circumstances. Past political responses to the problems of

the poor have varied enormously, and there is considerable disagreement

about the approach that should be taken.

B. Private Sector Approaches

"Leave it to the private sector" is the understandable response of

many people to medical indigency. After all, most of the progress in
past generations was due to the astonishing success of private group

health coverage. It is largely responsible for bringing health coverage to

approximately ninety percent of American workers and their depend-

ents. ^'"^ Moreover, "mainstream" employment group coverage prepays

for most typical medical and dental services from almost any licensed

provider at little out-of-pocket cost to the insured—thus guaranteeing
access to care while also protecting against poverty-inducing catastro-

phe.2^^

The spread of workplace group insurance, however, seems to be
reaching its natural limit.

^'^ Under current economic conditions, it ap-

pears that a relatively high level of "structural uninsurance" will remain.

Of course, this level will vary from place to place depending upon
economic conditions, the employment structure of the economy, existing

tax incentives, and so on.

Relying on private efforts to increase insurance can only partly

address the problem of medical indigency. Private coverage can reach

only those with the wherewithal to pay for coverage. It thus bypasses

the indigent, although more coverage would tend to prevent the type

of medical-financial catastrophe that can cause people to become med-

ically indigent.

Most employed people who do not have "proper" coverage and
who might expect to benefit from private solutions are in small em-
ployment groups. Of employees in larger groups (100 or more employees),
nearly 100% have coverage, whereas fewer than half of the people in
smaller employment groups have health coverage. ^'^ The plain fact is
that existing forms of coverage sold through existing organizational

arrangements simply cost more than many of these workers and their

^'"See, e.g., Moyer & Cahill, supra note 24; see also supra notes 12-15 and accompany-
ing text.

^' ^Medicare and Medicaid are similar to private coverage in this regard; they have

essentially adopted the workplace model of middle class style coverage for their particular

populations.

^'*See supra text accompanying notes 46-52.

^''See, e.g., Moyer & Cahill, supra note 24. The problem is thought to be still worse
for very small groups, those with twenty, ten, or fewer employees.



1986] CARE FOR MEDICALLY INDIGENT 893

employers are willing to pay. For smaller, poorer workplaces and for

individuals, covering the same medical expenses costs more per capita

in absolute terms, costs much more as a relative share of earnings, and
receives considerably less government "subsidy" in forgone taxes. ^^^

For large groups, medical experience is more predictable (and hence

more insurable), and economies of scale make coverage cheaper to sell
and to administer. Relative costs of sales, administration, claims settle-

ment, and regulation all rise as group size declines; and many of the
economizing methods of large groups are not available to smaller ones,

at least not to the same degree—including, for instance, self-insurance,
sophisticated protocols for screening and reviewing care, and negotiating

favorable rates with medical providers. Smaller groups can combine into

larger ones, but artificially created large groups do not act like naturally

existing groups. ^^^ Finally, the tax-free status of workplace health benefits

provides a greater benefit to higher income workers than to poorer ones

because income taxes are progressive. Those working poor most in need

of assistance pay no income tax at all but likewise receive no tax benefit

from buying medical care through workplace coverage, unlike their middle

class counterparts.

Some private initiatives offer opportunity for improvement, notably
in underwriting and pooling smaller groups and in developing attractive

plans with better cost-containment features. ^^° Attitudes about the im-

portance of insurance may also change. However, substantial changes
in the extent of purely private coverage look implausible in the near

future. Clearly, more fundamental changes will require more government

involvement, either through direct or indirect subsidies or through some

form of mandates or coercion. Again, this should not be surprising.

If the poor and near poor cannot or do not cover themselves voluntarily,

someone else must pay for their care, at least in part.

C Public Sector Approaches
Any model of coverage and care for the medically indigent must

address four basic questions: who should be eligible; what should be
the nature of the product or program; how should it be financed; and
how should it be administered.^^' This Article next examines a number

^•*On the problems of small versus large groups in insurance markets, see Bovbjerg,

supra note 24.

^'^Differences stem mainly from adverse selection, increased sales and administrative

expenses, and instability over time. See generally id.

^2'There are many ways to characterize options for indigent coverage and care, and

each author tends to develop his own. These four issues cover the fundamental choices.

For somewhat different categorizations, see, e.g., IHPP, supra note 136; State and Local

Government Responsibilities, supra note 93; Bartlett, Overviev/ of Public Policy Options



894 INDIANA LAW REVIEW [Vol. 19:857

of models and the different ways they attempt to answer these questions.

1. Eligibility for Assistance.—The uncertain nature of medical in-
digency makes it difficult to determine who should be eligible. One
problem is the difficulty of deciding what constitutes "need." Taxpayers

and the political systems that represent them are unwilling to finance

unlimited amounts of everything called "medical care" for all those who
cannot or do not provide for themselves. From a policy perspective, it
is clearly inappropriate to undercut incentives for self-help and to promote

"free riding" by many people who would normally insure themselves
but who would happily take free public assistance instead.

Another problem with defining eligibility in advance is that relevant

circumstances are not fixed: employment status changes, and people's

incomes go up and down, as does their medical spending. The inability
to foresee such changes compHcates the operation of an insurance-style

program, which contemplates coverage for a defined population over a

preset time period. The uninsured, in notable contrast, are a constantly

shifting and unstable grouping.

Nonetheless, some ehgibility guidelines must be created, using income,

assets, medical status, and other characteristics of potential eligibles.

One way to deal with shifting circumstances is to allow administrators
discretion to reevaluate ehgibility on a continuous basis (for each hospital

admission, for example). A major legal question is to what extent
administrators will be allowed discretion to grant or deny eligibility for

unusual circumstances; indeed, existing medical indigency programs often

have extremely vague standards. These standards could be difficult to

sustain against an attack on due process grounds.^^^ A major practical
concern is that constant reconsideration is not only expensive for public

administrators but also a deterrent to private actors who may be at risk
as a result of a finding of non-eligibility. Vagueness makes it difficult

for both eligibles and providers who deal with them to know where
they stand; this uncertainty must hurt access to care for these uncertain

eligibles.

At any given level of public spending, there is a clear trade-off

between covering more people and providing more benefits: the more

people covered, the higher the expense. Indeed, of any design decision,

eligibility has the greatest impact on total program spending. The quickest

way to increase or decrease spending is to add to or subtract someone

to Improve Access for the Medically Indigent, in Academy, supra note 136, at 47; Butler,
supra note 136; Hughes, Local Anesthetics: A Look at States' Programs for the Uninsured,
Health/PAC Bulletin, November 1986, at 11; Lewin & Lewin, Health Care for the Unin-
sured, Bus. & Health, September 1984, at 9; Wilensky, Underwriting the Uninsured:
Targeting Providers or Individuals, in Uncompensated Hospital Care, supra note 30, at 148.

"^5ee Butler, supra note 136; State and Local Government Responsibilities, supra
note 93, at 19-22.



1986] CARE FOR MEDICALLY INDIGENT 895

from the rolls. Other program adjustments have a much smaller fiscal
impact than completely dropping or adding an additional person.

One way to avoid having to make an all-or-nothing eligibility decision

is to require people to contribute something on their own on an income-
related basis, even if they receive public assistance. Public assistance

then subsidizes self-help rather than wholly replacing it. This can be

done in advance by making beneficiaries share in premium payments,

or after the fact, by making them co-pay for incurred medical expenses.

Nevertheless, requiring even partial payments from poor people in need

of care is distasteful to many; cost sharing under Medicaid has met

with considerable political reluctance.^^^ Moreover, it has often proven

difficult for providers to be very vigorous or effective in collecting their

unpaid share of bills from a relatively poor population.

Another possibility is to target specific groups seen as fiscally or

medically needier than others or those for whom the public investment
in care is perceived to have the largest benefit. The most obvious group

on both these counts is composed of low-income children and expectant

and recently delivered mothers. Numerous states are beginning to target
Medicaid expansions in this manner; the same could hold true for other

public efforts to aid the indigent.
^^"^

Of course, setting eligibility standards to aid the medically indigent
is more easily described in the abstract, as here, than actually imple-

mented. As already noted, the concept of medical indigency is itself not

easy to define.^^^ Numerous programmatic problems arise in defining
what support to provide to people at what levels of income and assets:

For example, over what period of time is income measured? What assets
count, including those of family members, and how are they to be
valued? What "spend down" of income or assets (to meet large, un-
covered medical bills) makes an otherwise non-indigent person eligible?^^^

Once an operational definition of medical indigency is created, including

^^^Traditionally, Medicaid programs have not been allowed to charge co-payments,

although this has changed somewhat of late. See Cost Sharing by Recipients, 3 Medicare

& Medicaid Guide (CCH) 1 14,731 (March 1983).
^^See, e.g., Dallek, States Study Health Care for the Uninsured Poor, 18 Clear-

inghouse Rev. 740, 743 (1984); Kosterlitz, Concern About Children, Nat'l J., Sept. 20,

1986, at 2255 (state task forces have recommended special attention to children in Colorado

and Texas, for example). Recent federal legislation has allowed expanded coverage. See

infra note 237.

^"See supra note 9.

^^^Medicaid has of course had to create numerous rules and administrative mechanisms

to decide eligibility; eligibility is generally conceded to be the most complex and difficult

part of Medicaid to describe or understand. See, e.g., Joe, Meltzer & Yu, Arbitrary Access
to Care: The Case for Reforming Medicaid, Health Aff., Spring 1985, at 59. Complexities
make it difficult even to know how many people are eligible for any Medicaid program
at a particular time; hence reliable program statistics focus on the number of known
"recipients" of covered care. See, e.g., J. Holahan & J. Cohen, supra note 18, at 45.



896 INDIANA LAW REVIEW [Vol. 19:857

of necessity lack of adequate health insurance, it becomes difficult to

avoid "free riding" by eligible beneficiaries who, absent pubUc aid,

would cover themselves through their own or their employers' efforts.
Even many low-income people have some insurance. Various strategies
exist to address this problem, but none is perfect. ^^^

2. The Product: Hospital Payment vs. Insurance.—What is to be
provided to those who are eUgible? Should public aid focus only on
hospital services, or should it instead provide for broader availability

of medical services, typically through an insurance-like mechanism? Either

approach can use public or private hospitals or insurance plans.

a. Hospital-based programs.—Three basic program models focus
on hospitals. The first is to operate a public hospital or, increasingly,

to contract with a private entity to operate it. Under the pubHc hospital

model, the hospital not only provides services but also determines eH-

gibility and benefits, since it is typically left to the hospital to decide

whom to serve, in what order, and how much care to give. It can be
difficult to establish good pubhc budgetary control over these hospital

choices. Public hospitals have been an important source of care for the

medically indigent, but the trend is toward reducing rather than increasing

the public role in this area.^^^

A second possibility is to contract with a number of hospitals, pubhc
and private, for the delivery of particular care to a particular population.

This model is often followed for small, specific public health programs,^^^

but is less often used for general medical care for the medically indigent. ^^^

Its use could be expanded, A major advantage of contracting over the
public hospital approach is that it may provide some competition among
hospitals for the contract(s). In any event, in many areas there is no
public hospital, and the contract approach offers a simple way to pay
for care.

"^Eligibility standards can be set very stringently to cover only the desperately poor,

who can seldom contribute to their own coverage in any case. But this eliminates the
working poor, with some income, who contribute large numbers of uninsured. A "sliding
scale" of income-related assistance is a promising alternative, but requires ongoing ad-

ministrative complexity either to bill beneficiaries for their share of public premiums or

to give them "vouchers" to buy private coverage. Another mechanism is to offer assistance

to only the "hard core" uninsured, for example, by requiring that beneficiaries have gone

two years without any private coverage. This discourages free riding but again leaves

uncovered many otherwise deserving potential eligibles. Requiring "maintenance of effort"
in terms of employers' buying private insurance is another possibility, but is administratively

complex: monitoring and enforcement for hundreds of thousands of small workplaces

would be needed, more if individual self-help were required.

^^^See supra notes 57, 58, 142 & 143 and accompanying text.
^^"^See supra note 145 and accompanying text.

"°An exception is Iowa where, with state funds, the University of Iowa Hospital and

Clinics provide "free" care to all county-certified indigents (up to a preset quota) from

all over the state. See IHPP, supra note 136, at 139.



1986] CARE FOR MEDICALLY INDIGENT 897

A third model, already in use in many states, is to cover a group
of qualifying hospitals under a ''vendor payment" program.^^i Under
this model, eligibility standards may be defined by the program, with
hospitals put at risk to obtain verification of patients' eligibility before

delivering nonemergency services.

These options have been aggregated under the rubric of hospital-

based approach because by far the bulk of such programs' spending

normally goes to hospitals. A Hmited amount of non-hospital outpatient
care could also be provided through direct dealings with non-hospital

providers, primarily those affiliated with public health systems. Public

health systems provide various primary, preventive, and other medical

services through pubhc health clinics operated by local governments and

staffed with public health nurses, doctors, and others. ^^^

The major advantage of the hospital-based approach is that it builds

on the existing system. After all, hospitals deliver the most crucial care,

receive the bulk of current spending on the medically indigent, and

provide the most uncompensated care. The other advantage of a hospital-

oriented approach is its relative ease of operation and finance. The

number of hospitals, especially public hospitals, is relatively small, which

facilitates dealing with them. It would be far more difficult to deal on

the same basis with physicians or other more numerous providers.

b. Medicaid and lesser
*

'insurance" programs, (i.) Advantages of
insurance.—The second basic approach is not hospital-oriented but rather
recipient-oriented—in short, insurance or something very much like it.
Insurance-style programs cover a broader spectrum of care and determine

eligibility not merely for one hospital episode, but for a set period of

time, much as private insurance enrolls people for a year or for some
other term of coverage.

Paying only for hospital care means covering only the most expensive
care and forgoing whatever possibilities exist to treat medical problems

before they become sufficiently serious to warrant institutionalization.
It also delegates to hospitals considerable control over who is to receive
care and to what extent. Moreover, if only public hospitals or a limited

number of private hospitals specialize in care to the poor, a hospital-

oriented approach also fails to promote quality competition, which may
be important in assuring that poor people get adequate care. There is

also some danger that any hospitals designated under a hospital-only
approach would be at least perceived as being lower quality, welfare-

style hospitals and hence would be shunned by the insured middle class.

In contrast, an insurance entitlement empowers the patient rather

^^^See, e.g., Butler, supra note 136, at 19-20; see supra text accompanying notes 146

& 147.
"^See, e.g.. Role of State and Local Governments, supra note 134; Public Health

Foundation, supra note 135.



898 INDIANA LAW REVIEW [Vol. 19:857

than the provider.^" Giving people control over their own insurance
money gives them a measure of dignity in contrast to shunting them to
a "charity" hospital. It also allows both patients and providers to plan

for medical care to a greater extent. Moreover, giving people the resources

with which to "shop around" may promote desirable quality competition.
Quality is also enhanced by hospitals' and doctors' serving the

medically indigent alongside better funded and possibly more demanding
patients. Covering more than hospital services promotes health main-
tainence and thus avoids some needs for inpatient care. This method

may or may not save money overall, but it certainly makes people better
Qff 234 Finally, under an insurance plan, a partial public subsidy is more
feasible because the beneficiaries' share is collected in advance, when
they are more likely to be healthy and employed. Collecting at the time
of medical need or thereafter, as with the hospital-based plans described

above, is more difficult. For all of these reasons, this Article strongly

supports insurance-style programs for the medically indigent, to the fullest

extent that they are politically and economically feasible.

Economic feasibility is, of course, the Achilles' heel of this insurance

approach. Broad coverage can be far more expensive than simply relying

on public hospitals, both because the price per unit of service may be
higher and because a great deal more care may be delivered and con-
sumed. ^^^ The great challenge, then, for those who favor an insurance-
style approach is to find ways to provide coverage that is less expensive

than conventional approaches or to persuade the electorate that expansion

of existing programs is fiscally prudent and a good medical value.

(ii.) Options for expanding Medicaid.—The best known and by far
the largest insurance-style approach is Medicaid. Indeed, the most

straightforward way to expand coverage for the medically indigent would
be to cover more poor people under Medicaid. For states, Medicaid is

a good insurance "buy" because the federal government pays half or
more of program spending on an open-ended basis. Medicaid coverage

could be expanded by raising the income standards for eligibility, by

choosing to cover people in optional categories such as two-parent families

or children aged 18-21 or by operating "medically needy" programs that

allow people to "spend down" to eligibility. ^^^ Additional expansions

"^For one view of the importance of empowering patients, see Bovbjerg & Held,
Ethics and Money: The Case of Kidney Dialysis and Transplantation, Topics in Hosp.

L., Sept. 1986, at 55.

^^"It is poorly appreciated that much so-called "preventive" medical care is not cost-
effective, that is, does not save a dollar in prevented care for every dollar invested in

prevention. See generally L. Russell, Is Prevention Better Than Cure? (1986).
^"People without insurance now get much less care even though they are sicker.

Giving those people coverage can thus be expected at least to double the amount of care

that they get in hospitals and perhaps similarly for outpatient services. See supra Table

4 & note 27.
236pg^ states maximize federal financial participation in Medicaid by setting the highest

allowable income limits and covering all optional eligibility categories. See generally J.



1986] CARE FOR MEDICALLY INDIGENT 899

would be possible if federal requirements for categorical eligibility as
well as low income were eased.^^^ However, the fact that states have
not expanded Medicaid eligibility indicates that they think it is too
expensive to cover more people in this way—even with federal subsidies. ^^^
The one major area of program expansion in recent years has been to
add coverage for poor children and their mothers. ^^^ Of course, states
are free to cover others as they please, without federal assistance.

(Hi.) New economizing options.—U Medicaid and other traditional
programs are perceived as too expensive, what alternatives exist? The
keys to economizing are to hold down the price and utilization of medical
care. This must be accomplished without leaving uncovered large expenses
for catastrophic care, a central goal of good coverage. It is especially
important to limit expensive hospital care, through some combination
of provider and patient incentives, prescreening of admissions, reviews
of care given, and judicious substitution of outpatient for inpatient care.

The other critical element is to lower prices paid to providers,
particularly hospital payments. ^^^ From the standpoint of the hospitals,

HoLAHAN & J. Cohen, supra note 18. This is one reason that only about AO^q of poor
people are Medicaid eligible. Id. For a good short review of Medicaid eligibility options,

see Reymer, Medicaid Eligibility Options, in Affording Access to Quality Care I (R.

Curtis & I. Hill eds. 1986).
"'Recent federal amendments have taken a first step toward easing categorical re-

quirements by allowing coverage of expectant mothers and poor children not receiving

AFDC cash assistance. See Consolidated Omnibus Budget Reconciliation Act of 1985,
Pub. L. No. 99-272, §§ 9501, 9511, 100 Stat. 82, 201, 212; Omnibus Budget and Recon-
ciliation Act of 1986, Pub. L. No. 99-509, 100 Stat. ; see also Kosterlitz, Breaking

Medicaid's Link with AFDC, Nat'l J., Sept. 20, 1986, at 2256. But more significant expan-
sions seem unlikely. The current administration has sought to cap federal Medicaid obliga-

tions rather than allowing states to expand them yet further. R. Bovbjerg & J. Holahan,
supra note 18, at 7-10, and budget deficits make congressional initiative unlikely as well.
See also supra note 63.

"*The number of Medicaid recipients has remained stable in the 1980's, despite

increased need for coverage. See supra notes 18-19 and accompanying text. See also J.

Holahan & J. Cohen, supra note 18, at 40-43.
"^The 1981 Medicaid amendments gave states the authority to target children's care

without having to provide full medically needy benefits for the elderly and disabled, who
consume far greater resources for less obvious returns in avoiding other long term medical

costs. R. Bovbjerg & J. Holahan, supra note 18, at 33-35. In the case of children, it
is possible to provide cost-effective care by expanding preventive and prenatal services

and thus to avoid many of the very large bills which can accompany difficult deliveries
and disabled or crippled children. Subsequent federal changes have both required and

allowed more coverage of children. See supra note 237.

^^°Of course, a key feature of any such program for the indigent would be a requirement
that the provider accept payment from the program as payment in full, except perhaps
for specified cost sharing by patients. That is currently done in both Medicare and Medicaid
with regard to hospitals. See Admissions and Quality Review, 1 Medicare & Medicaid
Guide (CCH) t 4227 (Nov. 1984); and Reimbursement in General, 3 Medicare & Medicaid
Guide (CCH) 1 14,723 (Oct. 1984) (Medicare); Limitations on Charges to Beneficiaries,
3 Medicare & Medicaid Guide (CCH) t 20,883Q (Oct. 1985); dind Acceptance of State Pay-
ment as Payment in Full, 4 Medicare & Medicaid Guide (CCH) 1 21,833 (June 1985)
(Medicaid).



900 INDIANA LAW REVIEW [Vol. 19:857

this may not be disadvantageous if it helps reduce the total amount of
uncompensated care and increase the number of paying patients. Of course,
one must take care not to reduce payments so far as to deny beneficiaries

desired access to care.^'*^ Prices can be held down either by setting prices
administratively for public programs, by regulating prices of providers,

or by using bidding or negotiation to select providers who are willing
and able to accept lower prices for a higher volume of patients. ^''^ Benefits

redesign—better targeting of benefits to needs—may also be helpful; the
optimal mix of benefits is probably not provided in the traditional

insurance policy.
^''^

What new arrangements embody these principles? Perhaps the best
known example is the Health Maintenance Organization (HMO). HMO's
use restricted panels of physicians and hospitals to deliver care and are

thought to be less costly than conventionally provided insurance on a

fee-for-service basis with open access to all providers of the patient's

choice.^ Many state Medicaid programs now promote HMO's for their
eligible participants; programs in California and Michigan have long

advocated this approach. ^"^^ Unfortunately, HMO's do not exist in all
parts of the country.

Using HMO's to care for the medically indigent presents other
problems as well. First, existing HMO's would want to be prepaid on
a monthly basis and guaranteed enrollment for six months or more, as

is possible under Medicaid.^"^^ However, the medically indigent can be

a floating population; some are transient, others are only intermittently

uncovered by private insurance or Medicaid. Second, HMO's are geared
to provide comprehensive, high quality care at a price not unlike that

charged by private conventional insurance. As a result, HMO's cost
considerably more per capita than what a state might pay for a public
hospital or for a limited vendor payment program.

^'The same holds true for physicians: It is desirable not to overpay physicians, but

if physicians are underpaid, they will not provide enough of the services needed to keep

people healthy and out of hospitals. This has been an endemic problem for states' Medicaid

programs. Low physician payment often results in people going to hospital emergency
rooms or outpatient departments for primary care that would have been much more
cheaply provided in physicians' offices. See generally J. Holahan & J. Cohen, supra
note 18, at 62.

^^See generally Bovbjerg, Held & Pauly, supra note 58; infra text accompanying
notes 253-56.

^^Long distance transportation (e.g., to less expensive outlying institutions) or non-

traditional providers for chronic-care services are two services not conventionally covered

but which could be cost-effective if implemented on a controlled basis.

^The extent of HMO savings has long been debated. It is clear that people in HMO's
use significantly less hospital care than others. H. Luft, Health Maintenance Orga-
nizations: Dimensions of Performance (1981). It is not clear to what extent this is due
to HMO economies rather than to self-selection by enroUees.

^'R. Bovbjerg & J. Holahan, supra note 18, at 57.
^*M at 58.



1986] CARE FOR MEDICALLY INDIGENT 901

Another possibility is the so-called Preferred Provider Organization

(PPO).^^ Using existing hospitals and doctor practices, PPO's operate

like a cross between conventional insurance, covering all providers, and

HMO's, with a limited Hst of covered providers. PPO's encourage
enrollees to use one of a selected group of so-called preferred providers,

who have agreed to hold down spending either by discounting their
normal fees or by agreeing to utilization reviews or other cost-containment

measures.

PPO beneficiaries have fewer cost sharing requirements for using
preferred providers than for using other providers, who are still covered
but at a lower rate. Both beneficiaries and preferred providers profit

from this approach. Beneficiaries receive full benefits from a restricted

Hst of providers, yet retain the ability to go to anyone at some additional

expense. Preferred providers benefit, despite lower fees or restrictions,

because they can expect to receive additional patients from the PPO or
at least to retain patients they might otherwise have lost. Since their

inception in the early 1980's,^'^^ PPO's have grown rapidly, but have

only recently expanded their marketing to include small groups and

individuals. It is not known whether any states or localities have attempted
to contract with private PPO's to enroll the medically indigent. As with

HMO's, PPO's currently compete primarily in the employment group
market and provide relatively complete benefit packages and high quality

care.

Another cost containment approach, which can be used in con-

junction with either conventional insurance or alternative systems like

HMO's and PPO's, involves "managed care." Management means in-
creased control over care by physician or nonphysician reviewers. One
common approach is "case management" by a primary care physician,
an internist, or a family physician. These physicians act as the patient's

point of entry for all care, controlling referrals to specialists and hospitals

and often reviewing the latters' care and charges. Traditional medical

practice has long been conceived as similarly beginning with a primary

care provider who then makes appropriate referrals, but in practice,
many patients have gone directly to high-priced specialists or hospital
care on their own. Moreover, even transfers from primary care physicians

have not normally involved fiscal management, although some medical
follow-up may exist. In contrast, case managers act like true "gatekeep-
ers" by controlling access to and use of care on both economic and

medical grounds. Various models exist, not all of which have been

successful.
^"^^

^^See, e.g., Gabel & Ermann, Preferred Provider Organizations: Performance, Prob-
lems, and Promise, Health Aff., Spring 1985, at 24.

^^See Bovbjerg, supra note 24.

^'It is possible, for example, to put financial risk on managing physicians, or merely

to reward them for being parsimonious in their patients' use of medical resources.



902 INDIANA LA W REVIEW [Vol. 19:857

A number of areas are experimenting with case management as a
way of holding down medical costs while providing broad access to well
integrated medical care. Thus, management can potentially have positive
effects on health as well as on spending. The state of Kansas, for

example, has made some progress in using case management for the
medically indigent population, ^^^ as has the state of Michigan through

its Medicaid program. ^^^

Outside reviewers can also "manage" care indirectly through such
mechanisms as prescreening of hospital admissions, concurrent evalua-

tions of the necessity for prolonged hospital stays, or retrospective review

of utilization and claims. These practices are now common in large
private health insurance plans, but less so in public plans. ^^^

Of course, achieving improvements through case management de-
pends on there being something to manage. Savings are possible where

disjointed and perhaps over-generous coverage has led to previous over-

spending, so that cutbacks are not deleterious. But the main problem

for the uninsured is prior lack of care, not over-service. One could
implement managed care for a previously uncovered population, but the
manager must be able to provide a minimum set of benefits—both
primary care and necessary specialists, in addition to hospital care—well
beyond what is currently available to many or most of those now
medically indigent. Such management should make coverage less expensive
than traditional open access insurance, but it will almost surely cost

more than the patchwork of care now available to the uninsured

—

because more care will be dehvered.
Mention should be made of two other major cost-containment ideas:

provider and patient incentives to economize. Providers can be motivated

to reduce their use of medical resources if they are prepaid some fixed

amount, rather than being "reimbursed" for their incurred costs or

charges as under the traditional practice of Medicare, Medicaid, and

private plans ahke. The 1980's have seen a virtual "buyer's revolution"

of refusal to accept provider-dictated spending.^"

^^^See Hansen, Kansas' Medical Coverage Programsfor the Poor: A Targeted Approach
Through State-Financed and State-Administered Programs, in Academy, supra note 136,
at E-1.

^^'See, e.g., McDonald & Fairgrieve, Michigan's Experiment with Case Management,
20 Clearinghouse Rev. 423 (Special issue, Summer 1986).

^"For private developments in managing health spending, see, e.g., J. Califano,
supra note 22; P. Fox, W. Goldbeck & J. Spies, supra note 22. Efforts are too numerous
and varied to catalog here; many are reported regularly in such newsletters as Coalition
Report (U.S. Chamber of Commerce, Clearinghouse on Business Coalitions for Health
Action, Washington, D.C.) and Medical Benefits (Kelly Communications, Charlottesville,
Va). For public-plan developments, see, e.g.. Affording Access to Quality Care, supra
note 236, especially chapter 5 at 127 (Bartlett, The Management of Medicaid Inpatient
Hospital Expenditures) and Chapter 8 at 201 (Neuschler, Alternative Financing and Delivery
Systems: Managed Health Care).

^"See, e.g., J. Califano, supra note 22.



1986] CARE FOR MEDICALLY INDIGENT 903

Prepayment can result from several approaches. First, plans may
simply set prices administratively and offer them to providers on a

"take it or leave it" basis, as does Medicare with its prospective payment

system for hospitals based on Diagnosis Related Groups (DRG's).^^"*

Alternatively, preset prices can be arrived at voluntarily through bidding

or negotiation, or set on a mandatory basis by economic regulation, as

are hospital rates in a number of states. ^^^ Referral or admitting physicians

can also be encouraged to economize on specialists' treatment or hospital

care by sharing savings with them.^^^ One concern about economizing
incentives is naturally that providers may undersQTVQ, just as generously
rewarded fee-for-service practitioners may overserve.

Finally, patients may be encouraged to save in similar fashion

—

either by having to share in spending (cost-sharing through deductibles,

co-payments, or co-insurance) or by being allowed to share in savings

below expected amounts. However, as previously discussed, patient-

oriented strategies are generally considered less desirable for poverty

populations than for the insured middle class. A payment requirement
to pay X dollars per visit may help insured patients weigh the cost
versus the value of care without preventing them from proceeding; for

poor people, the burden looms larger relative to their other needs and

may deter them from getting care altogether.
3. Financing, a. Fiscal requirements.—How much financing is needed

to cover the medically indigent? That obviously depends on one's def-

inition of the problem and on how generous one is in addressing it.
The potential range is $5-50 billion, with $15-20 billion a reasonable

estimate for moderate initiatives. A minimal program might cover only
the cost of non-elective, uncompensated hospital care that is already

provided to "charity" patients. Such care totalled about $4-5 billion in
1986.^^^ Funding such care through a pubhc program would be the

^^'*See, e.g., Bovbjerg, Held & Pauly, supra note 58.
^^^See, e.g., id.

^^^Some case management strategies do this, as noted supra notes 249-52. Similarly,
some HMO's give their doctors performance bonuses. And some hospitals prepaid by
Medicare have sought to reward physicians for holding down hospital spending. See U.S.
Gen. Acct. Off., Pub. No. HRD-86-103, Medicare: Physician Incentive Payments by
Hospitals Could Lead to Abuse (1986). Congress has acted to ban under Medicare and
Medicaid any payment incentives to physicians from hospitals or risk bearing HMO's to
reduce or limit services to patients. Omnibus Budget ReconciUation Act of 1986, Pub. L.
No. 99-509, § 9313, 100 Stat. , .

^"The figure is the authors' rough estimate, with the following assumptions: The
1986 cost of uncompensated hospital care is $13 bilhon. Cohodes, supra note 36 (citing
estimates by American Hosp. Ass'n). About one-third of such care goes to charity patients,
as designated by hospitals themselves. Sloan, Valvona, & Mullner, supra note 31, at 19.
Approximately two-thirds of such care is for non-elective services. Cf. id. at 30 (fully

42% of relevant hospital charges comes from two categories, childbirth and accidents —
both non-elective services). Note that the estimate of $4-5 billion does not allow for an
increase in hospital service generated by the knowledge among hospitals and indigents



904 INDIANA LAW REVIEW [Vol. 19:857

minimal response to the problems of the medically indigent.

The highest reasonable estimate comes from assuming coverage for

all of the uninsured and underinsured for a broad range of services to

a very high level of medical spending—on the ground that in-depth
coverage for all is needed to prevent catastrophic medical expenses from

rendering anyone medically indigent. Full coverage implemented on a

national basis could easily cost $50 billion dollars more a year than is

now spent, depending on how rich a benefit package were provided.^^^

This approach would constitute national health insurance, although it

might not closely resemble the ambitious federal plans of the 1970's in

design or implementation.

More reasonable estimates of a program to cover the medically

indigent surely lie between the $5 and $50 billion extremes. As a rough

guess, spending $50 a month only for those now uninsured who are
below the poverty Une would cost "only" about $6 billion the first year,

whereas spending $80 a month for those with family incomes under two

alike that more funds were available to cover charity care. Depending on the eligibility
and payment rules applied under a new system, such an increase could be substantial.

2^^The $50 billion figure derives from assuming that an equivalent of 30 million

uninsured person-years currently exist, with an additional 20 million underinsured (i.e.,

not protected against catastrophe). Benefits are estimated at $100 per month for the

uninsured, half that for the underinsured: ($100/month/person x 12 months/year x 30

million person-years) + ($50/month/person x 12 months/year x 20 miUion person-years)
= $48 billion. No allowance is made for increased spending due to people cutting their
own coverage to rely on government help. Discussion: Some 35 miUion people were
uninsured in March 1984, probably two-thirds of them for the entire year, one-third for

part of the year, perhaps averaging six months, for a total of about 30 milUon person-

years. Calculated from M. Sulvetta & K. Swartz, supra note 16, at 3. At least an
additional 20 million are underinsured. This estimate is from the finding that in 1977

24*^0-37% of population was underinsured overall, id. at 19, whereas only 11% was
uninsured at the time of survey, id. at 3. See also Farley, supra note 11. The $100 and

$50 figures are reasonable guesses for moderate coverage. Average per capita personal

health spending for the entire population for 1986 is estimated at $146 per month. Calculated

from data in Arnett, McKusick, Sonnefeld & Cowell. Projections of Health Care Spending
to 1990, Health Care Festancing Rev., Spring 1986, at 1, 3, 12. Spending of course

varies greatly according to characteristics of the insured and of the benefits covered. See,

e.g., id. at 20-32. Medicare, for an aged and disabled population, currently spends some

$180 per month for each beneficiary, not counting beneficiaries' own spending. U.S. Office

OF Management & Budget, The United States Budget in Brief 46-47 (1986) ($67
billion in federal fiscal 1986 for some 31 milhon beneficiaries). Medicaid spends about

$159 per month per recipient overall, although nearly half goes to a small fraction of

eligible recipients receiving long term care. Id. at 44 ($23,7 billion federal, $19.3 billion

state for 22.5 million FY 1986 recipients). Not all of these people are covered for the
entire year, so the estimate is biased low. Federal spending in 1986 for the Federal

Employees Health Benefits Plan averaged fully $221 per month per covered employee

(each with an unknown number of dependents), not counting employees' share of premiums

(about 25% of the total or 33% more than the federal share) or required cost sharing.
U.S. Office of Management & Budget, Budget of the United States Government, Ap-
pendix, Fiscal Year 1986 I-V 7 (1986) [hereinafter U.S. Budget].



1986] CARE FOR MEDICALLY INDIGENT 905

times the poverty level would cost some $20 billion.^^^ In practice, it

would not be sensible to cover everyone below some arbitrary level for

100% of the cost and no one above it at all. Such abrupt breaking
points (or ** notches," as they are often called) are unfair to those just

above them, discourage beneficiaries from earning more (or reporting

earnings), and encourage non-beneficiaries to drop to covered levels. An
intermediate method is to provide graduated support in the boundary
zone (often called "shding scale'' support), which probably would increase

spending.

In comparison, states now spend about $20 billion a year in
Medicaid,^^^ and almost all are working hard to cut back its scope. ^^^

Moreover, states spent an additional $24 billion on hospitals and other

health care in 1985.^^^ Cities and counties together contributed somewhat

less, about $18 biUion on health care in 1984.^" New funding for the
indigent could displace some existing spending; this small "savings"

would likely be overwhelmed by new spending generated by almost any
new entitlement.

b. Funding sources and limitations, (i.) State taxes and federal

preemption.—States and localities have numerous funding options through
taxation or mandates on individuals, employers, providers, and insurers.

In principle, any existing state tax could be used to fund programs for

the medically indigent, whether they were public programs, like Medicaid,

or private programs, like those considered in the next subsection. Tra-

ditionally, these taxes include the state income tax (for most states),

city, county, and state property taxes, and sales and excise taxes. Any
or all could be used for these purposes. States could appropriate general

fund monies or they could dedicate a particular tax levy to help meet

the needs of the medically indigent. Because state budgets are already

hard pressed, new revenues are probably needed, and many people prefer
to raise new revenue in some way related to health—by raising so-called
"sin taxes" on tobacco and alcohol, for example. Nevertheless, it is

clear that such taxes by themselves probably will not produce sufficient

^^'About one-third of the uninsured are uncovered only during part of the year,

Farley, supra note 11, so that they would not need new assistance for the full year. Also,

the estimates do not include newly uninsured people taking advantage of new assistance.

^^See U.S. Budget, supra note 258.

^^See generally Affording Access to Quality Care, supra note 236; J. Holahan
& J. Cohen, supra note 18.

^^^U.S. Bureau of the Census, Series No. GF84, No. 3, State Government Finances
IN 1984, at 2 (1985). Not all of such spending covers medical indigents, of course; much

goes to particular classes of patients not based on income, e.g., victims of tuberculosis,

crippled children.

^"U.S. Bureau of the Census, Series No. GF84, No. 4, City Government Finances
in 1983-84 (1985) and Series No. GF84, No.8, County Government Finances in 1983-

84, at 2 (1985).



906 INDIANA LAW REVIEW [Vol. 19:857

revenue, ^^"^ and there is, of course, considerable political resistance to

general tax increases. ^^^

Therefore, funding that does not require direct taxation of individuals

attracts considerable interest. Public funding can be provided, in part,

by a tax or assessment on hospitals not providing a specified minimum
amount of charity care. Under this approach, all hospitals could be

required to provide a certain percentage of, say, their gross revenue as

charity care. Hospitals providing less would be required to pay the

difference into the fund.^^^ Public policy makers may find such taxation
by regulation attractive because it is *'off budget," or at least off their

budgets.

Adopting this concept would have the added benefit of eliminating
*

'dumping" of non-paying patients as a way to hold down prices in the
increasingly competitive hospital market. Although expensive, it would

promote access to inpatient care for poor people, and the expense would

be spread among paying hospital patients, largely insured patients. Of
course, a standard definition of charity care, as compared to uncom-

pensated care, would be needed to exclude bad debts of those capable

of paying. And administration of this "program" would have to be left
mainly to hospitals themselves. ^^^

One might also attempt to reduce the number of uninsureds gen-
erally—not only the medically indigent—by mandating that employers
provide health insurance to their employees. The state of Hawaii currently

has such a program. However, a legal obstacle prevents other states

from enacting similar programs. The federal Employee Retirement In-

come Security Act of 1974 (ERISA) interferes with state options through
its regulation of employee benefit plans, both pension plans and welfare

benefit plans.^^^

^^'*See Bartlett, State Level Policies and Programs, in Academy, supra note 136, at

54, 60-61.

^^^See supra note 56.

^^The Ohio task force dubbed this the "care or share" approach. Governor's

Commission on Ohio Health Care Costs: Final Report (July 1984) (summarized in J.
LuEHRS & R. Desonla, supra note 61, at 37-38). Hospital taxes could also be based on
net revenues, number of licensed or occupied beds, or other measures. Pooling similar

to that described in the text already occurs within hospital rate-setting states and in Florida,

where it helps fund an expanded Medicaid program. E.g., Perkins, Dallek, Dowell &
Waxman, State-Based Financing of Indigent Health Care: Promise and Problems 20
Clearinghouse Rev. 372, 372-75 (Special Issue, Summer 1986).

^*^Such charity pooling seems impractical to extend to providers other than hospitals

because there are so many of them.
2^«29 U.S.C. §§ 1001 et seq. (1982). Welfare benefit plans covered under ERISA

include those that provide for medical, sickness, accident, and other non-pension fringe

benefits. 29 U.S.C. § 1002(1) (1982). It should be noted that nothing in ERISA regulates
the contents of welfare benefit plans; only reporting and disclosure requirements were

enacted, according to conventional wisdom because Congress expected national health

insurance soon to supercede all existing health plans.



1986] CARE FOR MEDICALLY INDIGENT 907

Intending to make regulation of employee benefit plans exclusively

a federal concern, ERISA expressly preempts state regulation of employee
benefit plans.^^^ One exception to this ERISA preemption of state law
is that states may continue to tax and regulate insurance, that is, insurance
companies and insurance contracts. ^^"^ The Supreme Court has upheld

such state regulation that mandates benefits to be covered in health

insurance contracts, for example. ^^^ However, the Court noted that ERISA
prohibits state regulation of an employer's benefit plan that is "self-

insured" rather than placed with an insurance company, as this would

not fall under the "insurance law" exception to the federal preemption.^^^

Increasingly, especially in large employment groups, health benefits are

self-funded.^^^

Given that ERISA prohibits state regulation of employee benefit
plans other than through the avenue of insurance regulation, it would

seem, a fortiori, that states cannot mandate that such plans exist.
^^"^

Thus, the state of Hawaii is able to maintain its program only because

of specific amendments to ERISA that "grandfather" the Hawaii Prepaid
Health Care Act.^^^ Of course, ERISA could be further amended to
grant states the authority to require private insurance coverage.

It might be possible for states to achieve similar "insurance" goals

through their power to tax employers. Clearly ERISA would not prohibit
states from taxing all employers to fund care or coverage for the

uninsured, for example, through a general payroll tax. Whether an income

tax, because it is related to ability to pay, or a payroll levy, because

it is related to the number of employees, is the more equitable method

is open to debate. A payroll tax would, of course, tax employers already
providing coverage in order to help those not now providing coverage,
and could thus considerably hurt incentives to insure, especially in in-

^^^29 U.S.C. § 1144(a) (1982).

2™29 U.S.C. § 1144(b) (1982).

^^'Metropolitan Life Ins. Co. v. Massachusetts, 105 S. Ct. 2380, 2393 (1985).

^^^ERISA expressly provides that self-insured plans are not to be considered "insurers"

or "insurance companies" for the purposes of state regulation, 29 U.S.C. § 1144(b)(2)(B)

(1982).

^^^See, e.g., Etheredge, The World of Insurance: What Will the Future Bring?, Bus.

& Health, Jan. /Feb. 1986, at 5 (describes growth of self-insurance); Self Insurers Out-
number Fully Insured Among Larger U.S. Corporations, Coalition Rep., April 1985, at
1.

"^5wr see Director of Bureau of Labor Standards v. Fort Halifax Packing Co., 510

A.2d 1054 (Me. 1985), prob. Juris, noted sub. nom Fort Halifax Packing Co. v. Coyne,
107 S. Ct. 430 (1986). In this case, Maine's Supreme Judicial Court held that because a

Maine statute requiring severance pay was only operative when a benefit plan was not

in existence, the statute did not "relate to" an employee benefit plan and thus was not

preempted by ERISA.

^^'Pub. L. 97-473, § 302, 96 Stat. 2605 (1982) (codified at 29 U.S.C. § 1144(b)(5)

(1982)).



908 INDIANA LA W REVIEW [Vol. 19:857

dustries where many companies already provide no insurance. To maintain
insurance incentives, employers could be allowed to deduct from the

amount of payroll tax due any amounts contributed to health benefit
plans (insured or self-insured) for their employees.

Would such provisions be impermissible regulation under ERISA?
Perhaps so. Some courts have interpreted certain state plans of taxation
as prohibited regulation and therefore ruled them preempted by ERISA.
For example, a federal district court in Connecticut found a statute that

imposed a 2.75^^0 annual tax on employee benefit plans to be void and

unenforceable because of ERISA preemption of state regulation.^^^ More-
over, in protecting Hawaii's Prepaid Health Care Act in 1983, Congress

specifically provided that Hawaii's ERISA exemption did not affect the
status of "any state tax law relating to employee benefit plans. "^^^ Courts

have interpreted this language to indicate that Congress intended to

preempt all state tax laws insofar as they relate either directly or indirectly

to employee benefit plans.
^"^^

Despite these rulings, a state may still be able to enact a payroll
tax with deductions for health coverage such as the one outlined above.

The rationale behind the deduction would be that these employers are

already doing their part toward financing health care by providing some

reasonable form of coverage. The legal argument runs as follows: First,

the tax is analogous to a state corporate income tax that allows deductions

for an employer's expenses incurred in maintaining employee benefit

plans. Clearly, such state income taxes with such deductions have not

yet been found to "relate to" employee benefit plans for purposes of

ERISA preemption. A payroll tax with similar offsets should be afforded
similar status.

Second, such a payroll tax does not "relate to" employee benefit

plans because the employer is taxed, not the benefit plan itself. Moreover,

unlike the voided Connecticut statute, the amount of deduction would

not discriminate between insured and self-insured health benefits—the
very distinction ERISA has been held to maintain.^^^ For these reasons.

"^National Carriers' Conference Comm, v. Heffernan, 454 F. Supp. 914 (D. Conn.
1978). Connecticut's tax on premiums received by insurance companies was 2%, which
meant that the tax structure operated as an incentive to use traditional insurance rather

than ERISA-exempted plans. The court found this discrepancy (2% vs. 2.75%) to be
"illustrative of the potential use of taxation as a means of regulation." Id. at 917-18.

^^^29 U.S.C. § 1144(b)(5)(B)(i) (1982).

"^"^See, e.g.. Northwest Airlines, Inc. v. Roemer, 603 F. Supp. 7 (D. Minn. 1984);
General Motors Corp. v. California State Bd. of Equalization, 600 F. Supp. 76 (CD.
Cal. 1984). See Shaw v. Delta Airlines, Inc., 463 U.S. 85 (1983); Alessi v. Raybestos-
Manhattan, Inc., 451 U.S. 504 (1981).

^^'^See supra notes 271-72 and accompanying text. Taxing self-insurance for the purpose
of funding the deficits of state high-risk pools has also been invalidated on ERISA grounds.
See generally Bovbjerg & Koller, supra note 211.



1986] CARE FOR MEDICALLY INDIGENT 909

a combination payroll tax and coverage credit may not be considered
as regulating employee benefit plans.

Similarly, states are also free to tax the insurance-like alternative

plans such as HMO's and PPO's; again, they may offset charitable care
these entities provide. Indeed, to some extent, states already do so through

the imposition of insurance premium taxes.
The calculation of such taxes as well as set-offs for indigent coverage

or care involve complex administrative questions. Nevertheless, such taxes

could provide a useful basis for funding, and could equalize the burden

imposed on competing financing and delivery alternatives—insurance
companies, self-insurers, and alternative plans like HMO's and PPO's.

Mandates or taxes on insurers, on medical providers, or on employers

may have more current political appeal than taxes on individual taxpayers.
Indirect funding through mandates for individuals to insure themselves

is another '*off-budget" option for states to consider. It would be foolish

to replace efficient group purchasing of health coverage by employers

with more expensive individual policies; however, it might be sensible

to fill in some gaps with individual mandates. One such mechanism is
auto insurance, with a long tradition of individual requirements. ^^° Au-

tomobile owners or drivers could be required to provide evidence of

adequate health insurance as a condition of Hcensure, especially to cover

the very large bills that often result from accidents and which contribute

disproportionately to uncompensated care in hospitals.^^'

(ii.) Private revenue.—States can also seek to attract voluntary
funding from individuals themselves (or their employers, if any) by

mandating, or themselves running, subsidized insurance plans for some
of the uninsured. The basic idea here is to encourage insurance coverage

with subsidies while holding down costs with private contributions to
premiums. This strategy presupposes that potential eligibles (or their

employers) can afford to make a contribution, so it does not address
the impoverished "hard core" of the uninsured. The approach would

nonetheless address two groups who may be considered medically in-
digent—the uninsured working poor and the medically uninsurable. Public

assistance could take the form of subsidizing eligibles' purchase of private

coverage with cash, vouchers, or tax benefits; alternatively, governments

could create publicly underwritten plans or insurance pools that eligibles

could "buy into" at below-market rates. ^^ It would be difficult, but

^^°See, e.g. Widiss, Introduction: Background and Perspective, in No-Fault Auto-

mobile Insurance in Action: The Experiences in Massachusetts, Florida, Delaware
AND Michigan (A. Widiss, J. Little, R. Clark & T. Jones eds. 1977).

^^^See supra note 257 on the contribution of accidents.

^^^Assistance to the working poor could readily take the form of providing a tax

credit for workplace purchase of insurance, which would assist low and high income

workers ahke, rather than today's tax exclusion, which disproportionately assists upper-



910 INDIANA LAW REVIEW [Vol. 19:857

perhaps not impossible, to structure such a new subsidy to aid those

at high risk of faiUng to insure themselves, without having to subsidize

too many otherwise similar people who already have coverage. This
approach is experimental but merits close attention.

A second category of potential eligibles also needs pubhc help to
obtain coverage but can contribute themselves. These are nonpoor people

otherwise uninsurable because of pre-existing adverse health conditions.

In a number of states, state-run comprehensive insurance risk pools help

these people buy standard policies at a surcharged rate.^^^ The pools

help a small fraction of even the uninsurable, and still fewer of the

uninsured generally, and they do so at a high cost because even the

surcharged premiums must be subsidized to meet high medical bills.

Moreover, as now run, the pools do not help the indigent, but only
those with the wherewithal to pay high premiums themselves. Although

states may move toward targeted subsidies to help the low income
uninsurable, high risk pools will provide only limited general help to

the medically indigent.

4. Administration.—Any of the strategies just discussed can be
implemented with varying degrees of public involvement. An entire public
system can be created, using public funds and employees. Alternatively,

government may specify what model(s) are desired and contract with
private companies to administer the plan(s). Or government may help
currently uninsured people "buy into" existing private plans, including

those run privately for public employees.^^"^ Beneficiaries may be required
to choose among multiple alternatives, e.g., HMO, PPO, private fee-
for-service plan, pubhc fee-for-service plan. Any of these alternatives
may be funded with a mix of public and private revenues.

bracket taxpayers. See generally Enthoven, Health Tax Policy Mismatch, Health Aff.,

Winter 1985, at 5. The self employed could also be given tax benefits equivalent to those

of group employees, as proposed in the Improved Access to Health Care Bill, H.R.

4742, S.2402-S.2403, 99th Cong., 2d Sess. (1986). Such major federal tax changes seem

unlikely, given that comprehensive reforms have just been legislated. See supra note 48.

^"See supra notes 11 & 26 for description of uninsurables; on the operation of state
pools, see Bovbjerg & KoUer, supra note 211.

^^"The state of West Virginia, for example, has a unique multi-employer group plan

for public employees that already covers about 1 state resident in 8. The plan began at

the state level, then expanded to cover local employees. The state is seeking foundation

funding to study the feasibility of opening the plan to small, private employers as well.

Remarks of Robert Chehig, West Virginia Public Employees Insurance Board, at Conference

on Facilitating Health Care Coverage for the Working Uninsured: Alternative Strategies,

Center for Policy Research, National Governors' Association, in Rosemont, Illinois (De-

cember 16, 1986). The two main implementation problems are how to prevent free-riding
by small employers who would have bought coverage anyway and how to prevent adverse
selection by high-utilizing new enrollees that would drive up the cost of the plan for all
participants. Some judgmental underwriting (exclusion of bad risks) appears to be required.
On the problems of pooling small groups, see generally Bovbjerg, supra note 24.



1986] CARE FOR MEDICALLY INDIGENT 911

The State of Arizona, for example, has brought a number of these
different methods together in the Arizona Health Care Cost Containment

System. ^^^ AHCCCS, as it is known, is a comprehensive program of
medical services provided to the medically indigent on a prepaid basis.

Arizona runs the program with federal financial participation in lieu of

conventional Medicaid. The program is privately administered under a

state contract set by competitive bidding. The private contractor in turn

contracts with local health plans for the provision of care, again on a

prepaid basis through competitive bidding. HMO's, PPO's, and others
are eligible to bid if they provide the requisite services in the designated

areas. All providers are required to use primary care gatekeepers.

Currently, AHCCCS is being run as a demonstration project with
federal Medicaid waiver authority, and results are not complete. The

results on quality and access are not yet in, and there is some concern
that people are not being well enough served. ^^^ However, the state itself

is encouraged that it is delivering good quality care to a broad section

of the medically indigent at a price less than that which prevails for

Medicaid in somewhat comparable sunbelt states. ^^^ The state plans to
expand AHCCCS to include non-Medicaid ehgibles, including the working
poor. This approach would mix public and private roles both in funding

and in administration.

Numerous other initiatives incorporating these economizing ideas are
under way at the state and local level, mainly initiated by public or
quasi-public entities. The Robert Wood Johnson Foundation has sought
to stimulate such trials with technical assistance and modest "seed

money. "^^^

As a matter of public administration, the need to implement controls
over medical spending points toward local control because most medical

markets are local. It is difficult to relate individually to providers or

patients from a distance. Moreover, integrating new medical assistance
with public hospital care might also occur more readily at a local level.
Public "tastes" in welfare spending also vary considerably from place

to place, certainly among states, and even within them. Some areas are
well known for high taxes and high benefits, while other areas are known
for the opposite.

Local control would also result in more experimentation than a
national or even a state approach, assuming that the responsible localities

^^^E.g., J. Christianson & D, Hillman, supra note 204.
^*^Kirkman-Liff, Refusal of Care: Evidence from Arizona, Health Aff., Winter 1985,

at 15.

^*^D. ScHALLER, Arizona Health Care Cost Containment System: Annual Report,
July 1984-June 1985, at 91-118 (March 1986).

^^^RoBERT Wood Johnson Foundation, Health Care for the Uninsured Program
(1985) (grant solicitation materials).

^^'^See generally P. Fox, W. Goldbeck & J. Spies, supra note 22.



912 INDIANA LA W REVIEW [Vol. 19:857

are large enough to support professional management. It is no accident
that changes in private-sector health insurance occur market area by
market area, through new entry by HMO's and PPO's and aggressive
benefits management by large employers, third-party administrators, and
business coalitions.^^^ On the other hand, medical indigence is greatly
affected by state-level decisions on welfare, Medicaid, hospital Ucensure,
and insurance regulation, as well as by federal ERISA, Medicaid, and
Medicare rules. Moreover, the ability of jurisdictions to raise revenues

varies, so a broader approach also makes sense.
Given the current administration's attitude, the federal government

appears to be out of the funding picture, although federal legislation

continues to seek state and private solutions. For example, bills apparently

to be reintroduced in the 100th Congress would require subsidized state

high-risk pools, as well as revenue pooling for essential hospital care

on behalf of those who cannot pay.^^° In any event, the short-term
political reality, along with tradition and legal theory, suggest that

combined state-local programs will be the dominant approach in the

future as in the past.^^' Such approaches can combine state strengths in

financing, pooling, regulation, and managerial expertise (available directly

or through technical assistance to localities) with local virtues of provider

and patient relations and flexible tailoring of programs to local desires

and needs.

V. Affording Decent Coverage for the Medically Indigent

Conventional medical care is expensive, as is the insurance needed

to cover it. One reason that it costs so much is the widespread belief
that only the best will suffice (especially when care is heavily insured).
Such attitudes seem to be changing, and certain economizing measures

have become acceptable.^^^ However, no * 'magic bullets" exist that can

make the same conventional care or coverage affordable for all without
considerable pubhc subsidy or coercion. ^^^ Even with new economies,

additional efforts to help the medically indigent will cost more than the
current patchwork of assistance through Medicaid, public hospitals, reg-

ulatory requirements, and private charity, and society seems unwilling

to contribute enough money, individually or collectively.^^"*

^^In the 99th Congress, these bills were S.2402, S.2403, and H.R. 4742, The Access
to Health Care Act; see also supra notes 63 & 282.

^^'See discussion of existing programs, supra notes 132-213 and accompanying text.

^'^The "buyers' revolution" in health financing has necessitated the acceptance of

hmits on insurance coverage and on patients' and medical providers' discretion to order
ever more and more expensive health care. See, e.g., J. Califano, supra note 22.

^"^^See Bovbjerg, supra note 24, at 416 (same conclusion, for private coverage, vol-

untarily purchased).

^^'The most obvious demonstration of unwillingness to pay for medical indigents is
states' reluctance to expand Medicaid to cover as many medical indigents as that program



1986] CARE FOR MEDICALLY INDIGENT 913

Improvements seem to require one or both of two interrelated de-

velopments—greater willingness to pay or increased acceptance of new
health '^products" that offer lower but still decent levels of protection

that people will be wiUing to finance. One major obstacle impedes both
developments—professional and political desires (and legal expectations)
for high quality medicine within a so-called single-tier system of health

care for all, even the medically indigent.

With regard to willingness to pay, several trends offer some en-

couragement:

(1) More information about the plight of uninsured indigents
should increase willingness to help them.

(2) Ordinary, middle-class people are increasingly at risk of

medical indigency—because many have lost well-insured jobs, because
many are beginning to work in small, less-insured workplaces, because
high medical spending can exceed what was once a reasonable extent of

coverage, and because more people are developing adverse medical histories

that hamper obtaining insurance. Funding an adequate social safety net

should appeal to those concerned about these risks.

(3) Finally, new mechanisms are being found to control medical
spending, ^^^ offering the eventual prospect that a politically attractive,

streamlined '^product" will indeed emerge.

New products, the second needed development, must be able to
implement sensible restrictions on the amount of care available and the

prices paid in order to maximize the number of people who can be
covered, even if this means somewhat more restricted access to less

elaborate care. For those who now have no protection at all, some care
is better than none. Indeed, existing medically indigent programs are

experimenting with restricting access to providers, as are many middle-
class plans.

Likewise, strong utilization control over the services delivered seems

reasonable, and it may prove appropriate to insist on less expensive,
nontraditional providers to cover certain services. It definitely makes

sense to keep people out of the hospital wherever possible. Something

Hke the Arizona AHCCCS program, perhaps with even a lesser package
of benefits, may be appropriate depending on the local situation. Of
course, any restrictions on providers or coverage can prove difficult to
implement. Further experimentation is needed here.

This ongoing search for a decent, even if bare-bones, level of coverage

is significantly hampered by ethical, professional, and legal reluctance

to allow lower levels. Anything less than equal care for all is often

castigated as '^rationing" or unethical
*

'second class" care. It faces legal

impediments as well.

will reach, even though the federal government pays half or more of the cost. See supra

notes 236-39 and accompanying text.

^'^^See supra notes 240-54 and accompanying text.



914 INDIANA LAW REVIEW [Vol. 19:857

All the permutations of ethical-professional concern cannot be suc-

cessfully addressed here. In brief, insisting on single-tier medicine for
all in practice means eliminating any assistance for many of the least
fortunate, because currently society demonstrably will not provide un-

limited funds. Perfection is the enemy of the good here, even in the
opponents' own ethical frame of reference. ^^^ Society accepts dual stan-
dards for other charity, whether pubhc or private charity, even with

regard to fundamental needs like food, housing, and clothing; why not
in medical care?^^^ Moreover, although today many politicians and prov-
iders pay lip service to the notion of

*

'nothing but the best" for all,

the reality differs. There are different delivery systems for the insured

middle class, for veterans, for Indians, and for people using public

hospitals. Accepting different programs for the medically indigent does

not seem unthinkable.^^^ Certainly, Medicaid pays less for physicians

than do private insurance programs and thus buys much lower access
for Medicaid patients. Yet, even with Medicaid, those within the eligible

categories are clearly better off than non-eligibles in otherwise similar

economic circumstances.

On a more philosophical level, it is notable that opponents seem to
like to invoke the spectre of "rationing"^^^ because it connotes denying

people something to which they are entitled and could get, absent a

meddling government.^^^ However, labeling lower but decent care or

coverage "rationing" is conceptually misleading and politically unhelpful.

In the case of indigent medical care or coverage, the real argument

concerns the nature and level of any entitlement; the "rationing" no-

^^^As argued by one respected academic and advocate of public health programs:

"[F]inally, the argument is advanced that special programs for poor people are fated to

become poor programs—always the first for recissions. That argument has served too
long as the refuge for neglecting poor people altogether." Miller, The Role of Health

Planning in the Provision of Complex and Not-So-Complex Services, in The Role of
Health Planning in the Competitive Era 43 (F. Sloan, J. Blumstein & J. Perrin eds.
forthcoming 1987).

2'Tor example, although it needs to be safe and fit for habitation, public housing

need not supply middle class space or amenities. Food stamps cover a minimal diet at
best, and no specific allowance at all is made for clothing. With regard to private charity,
people seem to donate used clothing rather than new, and soup kitchens hardly offer

cuisine competitive with many restaurants. It is true that some health care more immediately
involves hfe and death than do food or housing, but access to true emergency care is

not what needs to be Hmited. See also supra note 67.

^^^Compare, e.g., Rosenblatt, Rationing 'Normal' Health Care: The Hidden Legal

Issues, 59 Texas L. Rev. 1401 (1981) with Blumstein, Rationing Medical Resources: A
Constitutional, Legal, and Policy Analysis, 59 Texas L. Rev. 1345 (1981).

^^hus, for instance, gasoline rationing means queues for all, not merely for the

poor. Cf Bovbjerg & Held, supra note 233 (prefer "resource allocation" to "rationing"
as descriptive term). "Rationing" as a term makes more sense if read in its older meaning
of "offering limited quantities" (as in sailors' "rations" of rum), but the usual connotation

of the expression is wholly different.



1986] CARE FOR MEDICALLY INDIGENT 915

menclature merely assumes entitlement to full equality without dem-

onstrating it or convincing taxpayers or others to fund it.

Hence, there are both practical and theoretical reasons for accepting

separate programs for the poor. Beyond the ethical-political arguments

He practical legal problems. The law also contemplates equality of care

for all, at least in that where care is provided, the same malpractice

^'standard of care" applies regardless of the patient's ability to pay.^^°

Thus, where care is limited and a bad outcome occurs, providers (and

insurers, as well) face possible liabihty.^^* In practice, legal exposure

may reduce coverage because providers and funding jurisdictions may
prefer to offer no nonemergency service rather than limited service or

coverage with a liability risk.

How might liability rules protect the medically indigent without
threatening willingness to help serve them at an affordable price? Prec-

edents are not encouraging. Under malpractice law, a ''reasonable mi-

nority" of practitioners may practice differently from the mainstream, ^^^

but the rule is grounded mainly in medical uncertainty, not differences

in patients' ability to pay. The traditional locality rule, although now
much eroded, is a second possibility. ^^^ The rule recognized local variation
in the extent of medical talent and resources available. Some cases
similarly hold it unnecessary for outlying hospitals to have the latest

equipment available. ^^"^ Such cases, however, focus on geographic rather

than economic differences. More to the point is the distinction between
specialists and general practitioners; specialists have a higher standard

because they hold themselves out to patients as being more qualified

(and, presumably, charge more as a result). ^°^ Public coverage that held

itself out as only a decent minimum might seem analogous, but indigent
patients have no real alternative, so the rationale is not really comparable.

Another relevant line of legal thinking—now quite academic and
somewhat heretical—holds that malpractice law should govern only in
the absence of contractual agreements specifying desired care (and dispute

resolution procedures). ^'^^ This approach suggests that different people

^°°See supra notes 97-98, 107-08 and accompanying text. Cf. Atiyah, Medical Mal-

practice and the Contract/Tort Boundary, 49 Law & Contemp. Probs. 287, 292-98 (Spring
1986) (desire for egalitarianism a reason for tort, not contract, to govern malpractice).

'°'See, e.g., Wickline v. State, 183 Cai. App. 3d 1175, 228 Cal. Rptr. 661, rev.
granted, 231 Cal. Rptr. 560, 727 P.2d 753 (1986) (issue of liability for bad outcome after
hospital stay cut short under third-party coverage rules).

^°'^E.g. A. Holder, supra note 97, at 55-57.

^°^E.g., Comment, Standard of Care for Medical Practitioners—Abandonment of the
Locality Rule, 60 Ky. L.J. 209 (1971).

"^E.g., Pederson v. Dumouchel, 72 Wash. 2d 73, 431 P.2d 973 (1967).
^"^Naccarato v. Grob, 384 Mich. 248, 180 N.W.2d 788 (1970).
^°^E.g., Havighurst, Private Reform of Tort Law Dogma: Market Opportunities and

Legal Obstacles, 49 Law & Contemp. Probs. 143 (Spring 1986).



916 INDIANA LAW REVIEW [Vol. 19:857

can choose different levels of care for themselves. It could be argued

that public beneficiaries had voluntarily accepted the restrictions in the

program, so long as those restrictions were fully disclosed. However,

this approach is not fully developed as a conceptual matter, much less
as an accepted rule of law, and its relevance to poor people with few

real choices is questionable.
^°^

Perhaps the very notion that malpractice law should set the standard

of care, in the sense of what care should be given, is over-broad. Partly

through an unfortunate linguistic coincidence, the legal standard of

"care," which originally meant the degree of carefulness required to be

non-negligent, has come to mean also what services themselves are
appropriate. Some rethinking seems called for here. The fact that a
given insurance program or a given provider simply does not cover long-

term care, mental health, or transplants—or for that matter, certain
hospitalizations or hospitals—does not seem to be a failure of "care."
It seems rather a personal or social judgment about the appropriate use

of limited resources.

Malpractice rules and judicial process seem better suited to deter-

mining whether a technical mistake or oversight occurred than to deciding

broader coverage issues. Thus, one solution to the problem might be

to establish a program that defines and is limited to specific medical

services and gives malpractice immunity to those who carefully provide
those services. Whether the jurisdiction(s) establishing such a program

can immunize themselves is another question.

VI. Conclusion

The main problem for the medically indigent is that they do not

have enough money. And the main problem with health coverage for
the indigent is that neither they themselves, their employers, nor their

government(s) have bought them adequate protection. Medical providers

have limited ability to provide charity care. Consequently, the medically

indigent are disadvantaged in their access to medical care.

This Article has discussed various ways of organizing and financing

coverage or care for the medically indigent. More public and private
resources must be raised through some combination of taxation, regu-

lation, and increased voluntary payment. The effort needed for even
medium-level assistance is significant, perhaps $15-20 billion in the first

year, or as much as states already spend on Medicaid.
If society in its various components is not wiUing to fund universal

coverage of a conventional kind—and it currently is not—then society
must settle for less, but in a constructive fashion. It must define a lesser

but decent health "product," preferably in a subsidized, insurance-hke

^°'Atiyah, supra note 300.



1986] CARE FOR MEDICALLY INDIGENT 917

form that offers beneficiaries choice among competing providers. Prov-
iders who participate in improving care for the indigent deserve praise,
not malpractice suits for dehvering only the care that is covered. They

should receive protection from tort claims of misfeasance when they
have in fact carefully complied with social norms of adequacy as reflected

in coverage rules.

The need is urgent and the time to begin is now. It is better to

start with a reasonable minimum, with the hope of later expansion, than
to hold out for optimal plans that may never come to pass. Further
arguing about "rationing" of care to the poor or the ethics of "two-

tier" medicine merely postpones difficult coverage decisions, to the clear

disadvantage of the medically indigent.