Privatization As Delegation

Columbia Law School Scholarship Archive Faculty Scholarship Faculty Publications 2003 Privatization as Delegation Gillian E. Metzger Columbia Law School, [email protected] Follow this and additional works at: https://scholarship.law.columbia.edu/faculty_scholarship Part of the Health Law and Policy Commons, Public Law and Legal Theory Commons, and the Social Welfare Law Commons Recommended Citation Gillian E. Metzger, Privatization as Delegation, 103 COLUM. L. REV. 1367 (2003). Available at: https://scholarship.law.columbia.edu/faculty_scholarship/144 This Article is brought to you for free and open access by the Faculty Publications at Scholarship Archive. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of Scholarship Archive. For more information, please contact [email protected]. PRIVATIZATION AS DELEGATION Gillian E. Metzger* Recent expansions in privatization of government programs mean that the constitutional paradigm of a sharp separation between public and private is increasingly at odds with the blurredpublic-private characterof modern governance. While substantialscholarship exists addressing the administrative and policy impact of expanded privatization, heretofore little effort has been made to address this disconnect between constitutionallaw and new administrativereality. This Article seeks to remedy that deficiency. It argues that current state action doctrine is fundamentally inadequate to address the constitutional challenge presented by privatization. Current doctrine is in- sufficiently keyed to the ways that privatization involves delegation of government power, and simultaneously fails to allow governments sufficient flexibility in structuring public-private relationships. This Article proposes instead a new constitutional analysis ofprivatization that reformulates state action in private delegation terms. Under the proposed analysis, the critical question is whether delegations of authority to private entities are adequately structured to enforce constitutional constraints on government power. Cen- tral to this approach is the recognition that mechanisms other than directly subjecting private entities to constitutional scrutiny can satisfy the demands of constitutionalaccountability, and can do so without intruding unduly on government regulatory prerogatives. Where such mechanisms are lacking, however, grants of government authority to private entities represent unconstitutional delegations. To implement this approach, the Article advocates a two-step inquiry thatfirst singles out private delegations creatingagency relationships between private entities and the government for special scrutiny, and then asks whether adequate alternativeaccountability mechanisms exist. TABLE OF CONTENTS INTRODUCTION .................................................. 1369 I. THE CONSTITUTIONAL CHALLENGE OF PRIVATIZATION ....... 1376 A. Contemporary Examples of Privatization .............. 1377 1. Medicare and Medicaid Managed Care ........... 1380 2. Welfare Privatization ............................. 1383 3. Privatization of Public Education ................. 1388 4. Private Prisons ................................... 1392 * Associate Professor of Law, Columbia Law School. For their helpful comments and suggestions, I am grateful to Henry Monaghan, Sam Bagenstos, George Bermann, Richard Briffault, Rodger Citron, Andrea Cohen, Michael Dorf, Ariela Dubler, Caitlin Halligan, Michael Hyman, John Manning, Walter Metzger, Burt Neuborne, Gerry Neuman, Cathy Sharkey, Susan Sturm, Peter Strauss, John Witt, and participants in Columbia Law School's Faculty Lunch Series. Maria Kirby, Matt Medina, and the staff of the Columbia Law Review provided superb editorial assistance. Thanks also to Josephine Coakley, Jennifer Norman, and Matthew Reynolds for research assistance. Finally, I would like to thank Lawrence N. Friedland, CC '47, Law '49, whose generous gift to Columbia Law School supported my work on this Article during the summers of 2002 and 2003. 1367 1368 COLUMBIA LAW REVIEW [Vol. 103:1367 B. Privatization as Delegation of Government Power ..... 1394 C. Preserving Constitutional Accountability and Regulatory Flexibility in Privatized Government ....... 1400 II. STATE ACTION DOCTRINE AND CURRENT CONSTITUTIONAL LAW ON PRIVATIZATION ................................... 1410 A. The Absence of State Action Under Privatization ..... 1411 B. The Inadequacies of Current State Action Doctrine... 1421 1. Inadequate Tests of Government Power .......... 1422 2. Unnecessary Intrusion on Government Regulatory Prerogatives ...................................... 1426 3. The Perverse Incentives of Current State Action D octrine ......................................... 1432 C. The Road Not Taken: Private Delegation Doctrine ... 1437 III. THE INADEQUACIES OF PRIOR PROPOSALS FOR REFORM ...... 1445 A. Prior Efforts to Reform State Action Doctrine ........ 1446 1. Foregoing the Public-Private Divide in Constitutional Law ............................... 1446 2. Reforming State Action Doctrine from Within .... 1448 B. Targeting Privatization Through Regulatory Reforms . 1452 IV. A NEW PRIVATE DELEGATION ANALYSIS FOR AN ERA OF PRIVATIZED GOVERNMENT ................................. 1456 A. The Case for Rethinking State Action in Private Delegation Term s .................................... 1457 B. Sketching the Contours of a Private Delegation A n alysis .............................................. 1461 1. Identifying Which Private Delegations Matter: The Centrality of Acting on the Government's Behalf and Agency ...................................... 1462 2. Structuring Private Delegations to Ensure Constitutional Accountability ..................... 1470 3. Remedying Unconstitutional Private Delegations.. 1480 4. The Effect of the Proposed Analysis on Existing State Action and Private Delegation Doctrine ..... 1483 C. Application of the Proposed Private Delegation Analysis .............................................. 1486 1. Privatization in Health Care: Medicare and Medicaid Managed Care ......................... 1487 2. Privatization in Welfare: Wisconsin's W-2 and Contracted-Out Welfare Services .................. 1492 3. Privatization in Public Education: Charters, EMOs, and Vouchers .................................... 1495 4. Private Prisons ................................... 1499 C O NCLUSION .................................................... 1501 2003] PR1VATIZATION AS DELEGATION 1369 INTRODUCTION Privatization is now virtually a national obsession. Hardly any domes- tic policy issue remains untouched by disputes over the scope of private participation in government, with such disagreements surfacing most re- cently in proposals for Medicare drug prescription coverage., Privatiza- tion is also endemic as a matter of administrative practice. Ours is a sys- tem in which private actors are so deeply embedded in governance that "the boundaries between the public and private sectors" have become ' "pervasive[ly] blurr[ed]. "2 The lack of a clear divide between public and private is in one sense not surprising, given modern government's extensive regulation of the "private" sphere. 3 Less acknowledged, however, is the extent of private involvement in the performance of government activities. Private entities provide a vast array of social services for the government; administer core aspects of government programs; and perform tasks that appear quintessentially governmental, such as promulgating standards or regulating third-party activities. While this kind of private involvement is longstanding, more significantly-and here reflecting contemporary political debate-it is expanding. Recent privatization efforts, particularly in health care and welfare programs, public education, and prisons, reveal a trend of greater discretion and broader responsibilities 4 being delegated to private hands. Despite privatization's political and practical ubiquity, however, recognition of the extensive intermixing of public and private has failed to permeate thinking about U.S. constitutional law. A foundational premise 1. See Robert Pear, Medicare Debate Focuses on Merits of Private Plans, N.Y. Times, 'June 9, 2003, at Al [hereinafter Pear, Medicare Debate] (describing debate over potential role of private insurers in Medicare prescription drug coverage plans); see also Lizette Alvarez, From Bipartisan to All Partisan on Air Security, N.Y. Times, Nov. 3, 2001, at Al (describing congressional battle over whether airport baggage screeners should become federal employees or remain employees of private contractors); Floyd Norris, Hard Talk, Softer Plans, N.Y. Times, July 10, 2002, at Al (describing disagreement over whether new board regulating auditors should be composed of and funded by accountants or should be independent of accounting industry); P.W. Singer, Have Guns, Will Travel, N.Y. Times, July 21, 2003, at A15 (discussing privatized military forces); Richard W. Stevenson, Two Sides Rally to Shape Social Security Discussion, N.Y. Times, June 18, 2001, at A14 (describing debate over President Bush's proposal to add private investment accounts to social security). 2. Ralph M. Kramer, Voluntary Agencies and the Contract Culture: "Dream or Nightmare?", 68 Soc. Serv. Rev. 33, 35 (1994); see also Martha Minow, Partners, Not Rivals: Privatization and the Public Good 6-28 (2002) [hereinafter Minow, Partners] (noting use of private organizations, both religious and secular,

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