Medical malpractice in the age of AI: Who will bear the blame?

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More than two-thirds of U.S. physicians have changed their mind about generative AI and now view it as beneficial to healthcare. But as AI grows more powerful and prevalent in medicine, apprehensions remain high among medical professionals.

For the last 18 months, I’ve examined the potential uses and misuses of generative AI in medicine; research that culminated in the new book ChatGPT, MD: How AI-Empowered Patients & Doctors Can Take Back Control of American Medicine. Over that time, I’ve seen the concerns of clinicians evolve—from worries about AI’s reliability and, consequently, patient safety to a new set of fears: Who will be held liable when something goes wrong?

From safety to suits: A new AI fear emerges

Technology experts have grown increasingly certain that next-gen AI technologies will prove vastly safer and more reliable for patients, especially under expert human oversight. As evidence, recall that Google’s first medical AI model, Med-PaLM, achieved a mere “passing score” (>60%) on the U.S. medical licensing exam in late 2022. Five months later, its successor, Med-PaLM 2, scored at an “expert” doctor level (85%).

Since then, numerous studies have shown that generative AI increasingly outperforms medical professionals in various tasks. These include diagnosis, treatment decisions, data analysis and even expressing empathy.

Despite these technological advancements, errors in medicine can and will occur, regardless of whether the expertise comes from human clinicians or advanced AI.

Fault lines: Navigating AI’s legal terrain

Legal experts anticipate that as AI tools become more integrated into healthcare, determining liability will come down to whether errors result from AI decisions, human oversight or a combination of both.

For instance, if doctors use a generative AI tool in their offices for diagnosing or treating a patient and something goes wrong, the physician would likely be held liable, especially if it’s deemed that clinical judgement should have overridden the AI’s recommendations.

But the scenarios get more complex when generative AI is used without direct physician oversight. As an example, who is liable when patients rely on generative AI’s medical advice without ever consulting a doctor? Or what if a clinician encourages a patient to use an at-home AI tool for help interpreting wearable device data, and the AI’s advice leads to a serious health issue?

In a working paper, legal scholars from the universities of Michigan, Penn State and Harvard explored these challenges, noting: “Demonstrating the cause of an injury is already often hard in the medical context, where outcomes are frequently probabilistic rather than deterministic. Adding in AI models that are often nonintuitive and sometimes inscrutable will likely make causation even more challenging to demonstrate.”

AI on trial: A legal prognosis from Stanford Law

To get a better handle on the legal risks posed to clinicians when using AI, I spoke with Michelle Mello, professor of law and health policy at Stanford University and lead author of “Understanding Liability Risk from Using Health Care Artificial Intelligence Tools.”

That paper, published earlier this year in the New England Journal of Medicine, is based on hundreds of software-related tort cases and offers insights into the murky waters of AI liability, including how the courts might handle AI-related malpractice cases.

However, Mello pointed out that direct case law on any type of AI model remains “very sparse.” And when it comes to liability implications of using generative AI, specifically, there’s no public record of such cases being litigated.

“At the end of the day, it has almost always been the case that the physician is on the hook when things go wrong in patient care,” she noted but also added, “As long as physicians are using this to inform a decision with other information and not acting like a robot, deciding purely based on the output, I suspect they’ll have a fairly strong defense against most of the claims that might relate to their use of GPTs.”

She emphasized that while AI tools can improve patient care by enhancing diagnostics and treatment options, providers must be vigilant about the liability these tools could introduce. To minimize risk, she recommends four steps.

  1. Understand the limits of AI tools: AI should not be seen as a replacement for human judgment. Instead, it should be used as a supportive tool to enhance clinical decisions.
  2. Negotiate terms of use: Mello urges healthcare professionals to negotiate terms of service with AI developers like Nvidia, OpenAI, Google and others. This includes pushing back on today’s “incredibly broad” and “irresponsible” disclaimers that deny any liability for medical harm.
  3. Apply risk assessment tools: Mello’s team developed a framework that helps providers assess the liability risks associated with AI. It considers factors like the likelihood of errors, the potential severity of harm caused and whether human oversight can effectively mitigate these risks.
  4. Stay informed and prepared: “Over time, as AI use penetrates more deeply into clinical practice, customs will start to change,” Mello noted. Clinicians need to stay informed as the legal landscape shifts.

The high cost of hesitation: AI and patient safety

While concerns about the use of generative AI in healthcare are understandable, it’s critical to weigh these fears against the existing flaws in medical practice.

Each year, misdiagnoses lead to 371,000 American deaths while another 424,000 patients suffer permanent disabilities. Meanwhile, more than 250,000 deaths occur due to avoidable medical errors in the United States. Half a million people die annually from poorly managed chronic diseases, leading to preventable heart attacks, strokes, cancers, kidney failures and amputations.

Our nation’s healthcare professionals don’t have the time in their daily practice to address the totality of patient needs. That’s because the demand for medical services is higher than ever at a time when health insurers—with their restrictive policies and bureaucratic requirements—make it harder than ever to provide excellent care. Generative AI can help.

But it is imperative for policymakers, legal experts and healthcare professionals to collaborate on a framework that promotes the safe and effective use of this technology. As part of their work, they’ll need to address concerns over liability. Ultimately, they must recognize that the risks of not using generative AI to improve care will far outweigh the dangers posed by the technology itself. Only then can our nation reduce the enormous human toll resulting from our current medical failures.

Medicare Advantage two-midnight rule contributing to higher outpatient revenues

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More than 20% of Medicare Advantage patients could be affected by the rule, report finds.

The Centers for Medicare and Medicaid Services’ January expansion of the two-midnight rule to include Medicare Advantage plans has contributed to higher inpatient volumes and revenue growth in the first quarter of the year, according to a Strata Decision Technology report.

This is because inpatient services have higher reimbursement levels compared to outpatient services and the two-midnight rule concerns inpatient care.

CMS published the final rule in April 2023, which for the first time expanded the rule to include Medicare Advantage plans. The rule requires patients to be admitted as an inpatient if the treating clinician determines they require hospital care that extends beyond two midnights, rather than being held under observation status as an outpatient.

The expansion now includes more than 30 million people enrolled in Medicare Advantage managed care plans. Prior to the final rule, the two-midnight rule only explicitly applied to traditional Medicare.

More than 20% of Medicare Advantage patients could be affected by the rule, the report found. An analysis of Medicare Advantage encounters from 2023 – before the rule was expanded to those patients – found that 22.3% were held in observation status for two days or more. By comparison, 8.7% of Medicare patients and 11.3% of patients covered by commercial plans had observation lengths of stay of two days or more in 2023.

WHAT’S THE IMPACT?

Looking at trends in hospital gross revenues, year-over-year growth in inpatient revenue surpassed outpatient revenue in March for the first time in more than two years. Inpatient revenue rose 3.7% versus March 2023, while outpatient revenue was up 2.4% year-over-year.  Overall gross operating revenue increased 3.1% and 2.2% over the same periods, respectively.

March marked the 11th consecutive month of year-over-year increases for all three metrics, which contributed to stronger margins in recent months, data showed.

Revenue growth varied widely for hospitals in different regions. For example, hospitals in the Northeast and Mid-Atlantic areas saw inpatient revenue jump 5.4% year-over-year in March, while outpatient revenue was nearly flat, down just 0.1%.

Adjusted revenues increased year-over-year, but were down month-over-month. Net patient service revenue per adjusted discharge increased 2.5% year-over-year, and decreased 1.7% versus the previous month, while NPSR per adjusted patient day rose 4.9% from March 2023 to March 2024, and was down 0.5% from February to March 2024.

Hospital operating margins showed strong performance throughout the first quarter. The median year-to-date operating margin was 4.7% for the month, down slightly from a peak of 5.2% in January, but up significantly compared to margins of less than 1% in early 2023.

While actual operating margin increased overall, the median change in the metric was nearly flat both year-over-year and month-over-month when looking at the national data. The median change in operating margin decreased 0.1 percentage point from March 2023 to March 2024, and was down 0.3 percentage point compared to February 2024. The median change in operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin decreased 0.4% year-over-year and 0.5% versus the prior month.

THE LARGER TREND

CMS initially implemented the two-midnight Rule for Medicare in 2013 to help remove barriers to patients receiving medically necessary care.

Medicare’s two-midnight rule states that inpatient services are generally payable under Medicare Part A if a physician expects a patient to require medically necessary hospital care that spans at least two midnights.

Retail clinic failures show collaboration may work better than competition

Posted on by • Posted in Amazon Care, Amazon Clinic, Amazon Pharmacy, Amazonification of Healthcare, CVS Health, Disruption, Primary Care, Primary Care Delivery Model, Retail Clinic, Retail Healthcare, Retail Pharmacy, Walgreens, Walmart • Leave a comment
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CVS has fared better because of its ability to scale and coordinate its other business model resources, Aetna and Signify, analyst says.

The disruption promised by the retailization of healthcare hasn’t materialized as planned.

Walmart and Walgreens recently announced the closing of retail clinics.

“The news is a significant setback for retail health players, some of whom are now realizing that delivering retail-driven primary care may not be economically viable and certainly isn’t causing the disruption in local healthcare markets that many predicted,” said Emarketer senior analyst for digital health Rajiv Leventhal.

Reimbursement for primary care is a major challenge, as are labor shortages and higher costs. Retailers that are not able to scale their clinics through synergies with other parts of their business models, as CVS has done, will find costs rising above their ability to make money.  

Walmart is closing all 51 of its health centers across five states, saying the business model was unsustainable.

“Healthcare is very difficult and very challenging,” said Innocent Clement, cofounder and CEO of Ciba Health and a physician by training. “Walmart (was) very disappointing news. I expected a lot. It’s embedded in all of our communities.”

Retail clinics help make healthcare affordable and the convenience of pharmacies creates access for vulnerable populations, Clement said.  

Retail based clinics and urgent care clinics play a role in controlling healthcare costs by diverting approximately 30% of cases from much higher-cost emergency rooms. 

“Walmart Health’s decision to shut down its health centers and telehealth services is a sudden pivot from its recent plans to expand but not surprising given retailers’ overall struggles in the care delivery space,” Leventhal said.

“It’s not Walmart’s first failed attempt at operating medical clinics, but it will likely be its last crack at it considering how badly it went – going from signing off on a plan in 2018 to build 4,000 primary care clinics to shutting down in 2024 after opening just 51. The latest effort was littered with red flags throughout, from struggling with basic billing and payment functions to leadership changes and other operational obstacles.”

Walgreens suffered a $6 billion loss in its second quarter due to its struggles to make VillageMD profitable. It announced it was closing 60 VillageMD clinics and that number is expected to rise.

Walgreens invested $1 billion in VillageMD and then dumped in $5.2 billion more, Leventhal said. The plan was to keep expanding and co-locating VillageMD clinics with a Walgreens pharmacy. As of last year, Walgreens had 680 clinics with an estimated 200 co-located with a drugstore. Now 140 are already closed with 20 more to close, many of those are co-located with a Walgreens drugstore.

“They’re still leaning into VillageMD investments where they’re succeeding,” Leventhal said. However, “the investment just has not paid off at all. That led to a significant jaw dropping loss.”

Walgreens’ $1 billion cost-cutting strategy should put it in a better position going forward, Leventhal said.

“What many people don’t realize is that urgent care clinics are experiencing a level of extreme financial pressure that endangers their availability, range of services, and continued existence,” said longtime healthcare executive Web Golinkin, a former CEO of RediClinic and FastMed Urgent Care. He recently published a book about his experiences in “Here Be Dragons: One Man’s Quest to Make Healthcare More Accessible and Affordable.”

Reimbursements from third-party payers on services at clinics have been relatively flat over the past recent memory, Golinkin said. This includes both commercial and government payers, Medicare and Medicaid. At the same time, operating costs have increased dramatically.

“It’s difficult for providers to have leverage in a retail health setting. It’s harder than it looks,” Golinkin said. “The reason we were disruptive, we were open seven days a week for extended hours and co-located with a pharmacy.”

But supply and labor costs increased during the pandemic and have not reset, he said. There’s already a shortage of primary care physicians.

RediClinic began inside retail clinics such as Walmart and Walgreens before being sold to Rite Aid in 2014, Golinkin said. FastMed was sold off piecemeal to HCA Healthcare, HonorHealth in Arizona and others.

The bigger picture is the lack of access in this country to primary care, Golinkin said. CMS needs to shift dollars to primary care, he said, a statement backed by the American Medical Association, which has been banging the drum for greater physician reimbursement.

Healthcare has narrow margins to begin with, Golinkin said, but may be able to offset losses in one area with profits from another.

Retail clinics may be able to offset losses through pharmacy sales, with the clinics acting somewhat as a loss leader to getting customers in the store, Leventhal said.

But what’s really needed is the ability to scale and a business model that brings consumers from retail pharmacy sales and the clinic to drug purchases and other care needs, as CVS has done.

The struggles for Walmart and Walgreens are a cautionary tale for other retailers, Leventhal said. 

“It’s difficult to operate a primary care startup,” he said.

There are nearly 14,000 urgent care clinics in the United States, Golinkin said, adding that most are under sole ownership and all are under the same financial pressure that caused Walmart to shut down.

“This is not just about Walmart. It’s an access issue,” Golinkin said. “What happened to Walmart is symptomatic.”

The answer may lie in partnerships between providers and retailers.

There are many examples of partnerships between retail medical providers and health systems. Prominent health systems such as Advocate Health Care, Providence, Kaiser Permanente and Cleveland Clinic either provide care in retail pharmacies or are clinically affiliated with one, according to Golinkin. 

Walgreens has a partnership with Advocate Health Care.

It makes a lot of sense from a continuity of care perspective, Golinkin said. If someone goes into a clinic in a retail space and sees a clinician associated with a hospital or physician practice, and that doctor or PA or nurse says the consumer needs further care, that person goes to the provider.

Most clinics and urgent care centers are tied now to an EHR for a clinically integrated network.

“This approach will boost referrals for health systems while saving them the costs of maintaining their own outpatient practices,” he said. “That’s the model we’re really going to see going forward, more collaboration.”

WHY THIS MATTERS

CVS Health has created the scale to make its clinics successful, according to Leventhal.

Amazon is also lurking as a potential competitor through its expansion with primary care startup One Medical. Amazon bought One Medical for $3.9 billion last year.

CVS took a hit to its bottom line as well, but that was mostly due to high MA utilization through its insurer, Aetna.

CVS is in a much better position strategically, because it has an insurer, a pharmacy benefit manager and also Signify Health, said Leventhal. 

CVS’s Aetna business makes it the most imposing retail health disruptor, he said. This combination of a payer and provider has substantial power in local markets and can influence patient decisions on where to get care.

The company’s acquisition of Oak Street Health and Signify Health gives it a full circle strategy. CVS is leaning into opening more Oak Street clinics within CVS drugstores, Leventhal said. 

CVS has the ability to synergize Aetna with Oak Street Health and Signify operations, as outlined in its 2023 Investor Day Presentation, according to Leventhal. 

For example, over 650,000 Medicare beneficiaries (not all of them Aetna members) visit CVS stores in Oak Street geographies each week, CVS data said. 

There are over 300,000 Signify Home visits annually in Oak Street geographies. Approximately one in six CVS customers end up scheduling a visit at an Oak Street clinic. CVS promotes this by setting up tables within their drugstores that have material on Oak Street.

Ten percent of Aetna seniors educated by Signify about Oak Street as a primary care option scheduled a Welcome Visit, the presentation said.

CVS was in a competitive battle to acquire Signify Health last year for $8 billion. Signify does risk assessments that are billed to the insurer, which connects them with services, specifically with Oak Street Health.

Even CVS would acknowledge delivering primary care through a retail entity is challenging due to low margins, Leventhal said. 

In theory, clinics appeared to be the perfect one-stop shop model. In reality, they faced a bunch of challenges, especially during and after COVID-19, Golinkin said.

THE LARGER TREND

Pharmacies, particularly independents, are also dealing with the cost pressures of reimbursement. 

Pharmacies are paid by pharmacy benefit managers a reimbursement fee for dispensing drugs, and over the course of the last 10 years those fees have materially declined, squeezing pharmacy margins, according to Seeking Alpha.

This squeeze is in part why Walgreens Boots Alliance’s cash flows have declined so precipitously and why rivals such as Rite Aid have been forced into bankruptcy, the report said.

The newest model for pharmacies is the cost-plus drug model. CVS, Walmart and Walgreens all have offerings and Walgreens is soon expected to roll out its own cost-plus drug model to create a more sustainable model for pharmacies to be reimbursed.

Walgreens CEO Tim Wentworth, who came aboard in October 2023, recently said that the company is ready to adopt a cost plus drug model, which is similar to the one used by Mark Cuban’s online pharmacy, Cost Plus Drugs. 

Cost Plus Drugs, which launched in 2022, works directly with drug manufacturers to avoid PBM middlemen. It lowers prices on medications by basing costs on the manufacturing fee, plus a 15% markup, a $3 pharmacy handling fee and a $5 shipping fee. Cost Plus also transparently displays what it pays for its medicines. 

Dow Jones Industrial Average hits 40,000 for the 1st time

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The Dow Jones Industrial Average crossed 40,000 for the first time in history on Thursday.

This is a significant and symbolic milestone for the index that tracks 30 of the most valuable publicly traded companies in the U.S.

The Dow is now up about 6% so far this year.

The recent rally in the Dow, S&P 500 and Nasdaq has been fueled by data showing inflation is cooling, which would allow the Federal Reserve to begin its long-awaited interest rate cuts.

Inflation data released on Wednesday showed that price increases slowed slightly from the annual rate recorded in the previous month, ending a surge of inflation that stretches back to the beginning of 2024.

In recent months, the Fed had all but abandoned its previous forecast of three quarter-point rate cuts this year. But the slowdown of price hikes offered hope of rekindling those plans.

“The combination of the Fed likely to be lowering interest rates because inflation is moderating with a resilient economy is a beautiful scenario for a bull market,” Ed Yardeni, the president of market advisory firm Yardeni Research and former chief investment strategist at Deutsche Bank’s U.S. equities division, told ABC News.

“It’s more enjoyable to say the market is going to these nice, round numbers in record-high territory than coming back down to them,” Yardeni added.

The inflation news on Wednesday sent each of the major stock indexes up more than 5% for the day, propelling all of them to record highs. In early trading on Thursday, the Dow had ticked up a quarter of a percentage point.

Observers have also attributed this year’s stock market rally to the rise in value of some major tech firms, driven largely by enthusiasm about artificial intelligence.