Although health plans once existed mainly to ensure that patients could pay for care, in recent years managed care organizations (MCOs) have attempted to limit expenditures by exercising significant influence over the kinds and levels of care provided. Some commentators argue that such influence constitutes the practice of medicine, and should subject MCOs to the same medical malpractice torts traditionally brought against physicians. Others hold that MCOs engage only in contract interpretation, and do not literally practice medicine.

This Article begins by arguing that traditional common law doctrines governing corporate practice of medicine do not precisely apply to the current situation because, whereas the traditional focus is on whether the corporation employs the physician, in the current setting corporations use many devices, not just employment, to influence medical care. Because an employment relationship is not the central question in determining whether an MCO is practicing medicine, a better definition is needed of what it is for a corporation (or a physician) to practice medicine. This definition will show that MCOs can and sometimes must practice medicine, thus opening the need to explore what sort of liability they should incur when they practice negligently.

Toward answering that question, the Article argues that the proper scope of medical malpractice and other tort liability for MCOs can only be discerned after it is determined what duty of care MCOs owe their subscribers. This question, in turn, should be guided by a focus on how to deliver good health care rather than by deciding, ex ante, whom we wish to hold liable when care has gone badly. In the quest to discern which tasks are best done by MCOs and which are best done by physicians, a reasonable division of labor between MCOs and physicians will be proposed. This division of labor acknowledges that MCOs must sometimes practice medicine, but will also show that MCOs currently practice medicine more than they should, primarily because contractual reliance on the concept of "medical necessity" requires them to practice medicine virtually every time they make a benefits determination. For a variety of reasons, the concept of "medical necessity" should be dropped entirely from health plan contracts. Finally, where MCOs do practice medicine, they should be subject to classic medical malpractice liability of the same sort to which physicians are subject. Applying these reforms in the context of corporate practice, however, requires some special analysis.