Arbitrating Healthcare Disputes: A Rational Alternative To The Lawsuit System

Monday, March 1, 2004 - 01:00

Keith Maurer
National Arbitration Forum

Commentators continue to describe and debate the healthcare crisis. And no element of this crisis seems to generate more vigorous debate than the way legal disputes involving healthcare are resolved. This is not surprising, because the number of healthcare lawsuits has grown steadily each year, and litigation costs have skyrocketed.

The trend of more costly lawsuits has an unfortunate effect on settlements, the manner by which most malpractice lawsuits are resolved. In 1999 it cost 30 percent more to settle a medical malpractice lawsuit than in 1998.1

The ripple effects of more lawsuits and more costly lawsuits are felt throughout the system and throughout the entire economy. Premium and legal costs are passed on to consumers, furthering patient dissatisfaction with America's healthcare system. Moreover, the threat of being sued - and the high litigation costs that accompany such lawsuits - is a major impediment to quality care. Medical errors are more likely to go unreported. The threat of potentially devastating litigation severely inhibits open discussion of flaws and failures.

In fact, doctors in several states have actually stopped providing care altogether. The high cost of professional liability insurance has forced them to stage walk-outs or abandon their practices.

So it's clear we can't sue our way to better healthcare. Patients need an avenue to protect their legal rights. But they also need access to affordable healthcare.

Arbitration Is An Ideal Forum To Resolve Healthcare Disputes

Arbitration is the ideal forum in which to decide legal disputes concerning healthcare. Through a pre-dispute arbitration agreement, patients and providers can agree to shift future legal disputes out of the lawsuit system into a fair, inexpensive, and efficient system - arbitration. Arbitration does not limit a party's right to seek redress but simply shifts the resolution of the dispute from the court system to an arbitration forum. (See, for example, the National Arbitration Forum (NAF) Code of Procedure, Rule 20D: "Arbitrators may grant any remedy or relief allowed by applicable substantive lawÉ").2

Arbitration is good for both organizations and individuals. In the 1995 Allied-Bruce Terminix case, the U.S. Supreme Court noted arbitration's benefits compared to litigation, including less expense, simpler procedural and evidence rules, less hostility between parties, less disruption of ongoing and future dealings among the parties, and more flexible scheduling of times and places for hearings and discovery.3

Despite overwhelming support from the judiciary - and empirical evidence of arbitration results that show it is fair - some have doubted arbitration's benefits, basing their views on long-held myths that individuals do not fare as well in arbitration as they do in court. Still others have attempted to prove that arbitration is more costly to individuals than litigation.

These suspicions have not held up under reasonable scrutiny. First, individuals are not at a disadvantage in arbitration. A number of commentators and researchers have concluded that individuals fare at least as well in arbitration than court, if not better.4

Second, it is well-settled that overall legal fees in arbitration are generally much lower than litigation. Courts and commentators who have thoughtfully compared overall litigation costs to overall arbitration costs have repeatedly reached this conclusion.5 Part of these cost savings is no doubt related to the fact that arbitration is nearly three times faster than litigation.6

Arbitration Law In The Context Of Healthcare

The Federal Arbitration Act and State Arbitration Law

A majority of states have enacted laws to govern arbitration in the health care field. Many state statutes set out specific requirements for arbitration agreements in the health care industry. The Federal Arbitration Act ("FAA"), however, pre-empts state laws that are inconsistent with its guidelines.7

The FAA was passed to reverse the courts' bias against arbitration. Section 2 of the FAA expressly states that written agreements to arbitrate future disputes are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."8 The FAA applies to common law and statutory claims.9

The Supreme Court has expressly held that the FAA applies to all disputes involving interstate commerce (including transactions involving individuals) and that the FAA should be read broadly to require arbitration where the contract contains an arbitration clause.10 Underlying this policy is Congress' view that arbitration constitutes a more efficient dispute resolution process than litigation.11

Federal pre-emption limits the ability of a state to place requirements on arbitration agreements. In Doctor's Associates v. Casarotto, the Supreme Court ruled that the FAA preempted a Montana statute that placed state requirements on an otherwise valid arbitration clause.12 The Montana statute declared an arbitration clause unenforceable unless the clause was printed in a certain format. Subsequently, other courts have interpreted the FAA as preempting state law restrictions regarding either format or the nature of the arbitration agreement.13

Courts have determined that activities in the health care industry constitute interstate commerce, and therefore, all arbitration agreements in the industry are subject to FAA guidelines.14 In reaching the conclusion that interstate commerce includes the healthcare field, the courts found that shipping medical supplies, performance of certain laboratory tests and recruitment of physicians often take place across state lines.15

Legal Precedent For Arbitrating Healthcare Claims

Courts have repeatedly reaffirmed the role of arbitration in all areas of business and consumer transactions, including healthcare. In Madden v. Kaiser Foundation Hospitals, the claimant agreed through his health plan that malpractice and all other claims against the hospital would be arbitrated.16 Later, when problems arose, he brought a lawsuit. The California Supreme Court, like courts all over the country, dismissed the suit and ordered the claimant to arbitrate the claims. The Madden court listed several benefits of arbitration, including speed and economy, less strenuous evidence rules, and simplified procedures. The court specifically noted that the cost of a medical malpractice arbitration would be considerably less than a similar lawsuit.17

In Buraczynski v. Eyring, the Tennessee Supreme Court held that arbitration can be as beneficial in the health care industry as in any other industry.18 The court also found that "arbitration agreements between physicians and patients are not per se void as against public policy."19

Elements Of A Successful Healthcare Arbitration Agreement

Agreements To Arbitrate Must Be Mutual

Arbitration agreements have been found to be unconscionable when the agreements are not mutual. Courts will refuse to enforce an agreement where a patient can use only arbitration for dispute resolution while the patient's physician can sue her in a court of law.20

Arbitration Costs Must Be Reasonable

Courts will also scrutinize a patient's prospective costs to determine whether arbitration is fair or unconscionable.21 Under appropriate circumstances, a portion of the patient's costs of arbitration must be borne by the healthcare provider, and in appropriate cases, arbitration must be available without cost to indigent patients. The fee schedules of most major providers of arbitration services, including NAF, reflect the guidelines set forth by the courts. In fact, the U.S. Supreme Court has recognized the Forum's Code of Procedure as "a model of fair cost and fee allocation."22

Arbitration Providers Must Be Neutral And Impartial

Arbitration providers should not have affiliation with any party to an arbitration. In Engalla v. Permanente Medical Group, Inc., the California Supreme Court held that an arbitration process administered by one of the parties leaves that party open to lawsuits alleging misconduct or misrepresentation related to the process, regardless of the neutrality of the arbitrator.23 The real importance of Engalla's remand for fact finding on "procedural unfairness" or "fraud" is that susceptibility to such collateral lawsuits obviates much of the value of efficient and rational arbitration. The Engalla opinion itself makes clear that arbitration administered by independent third parties such as NAF are immune from these attacks.24


Arbitration agreements are welcomed in the health care industry. They can serve as the vehicle toward a more rational, efficient, cost-effective forum in which to resolve healthcare disputes. After all, we can't sue our way to better healthcare.1 Current Award Trends in Personal Injury, 2002 Edition; Jury Verdict Research, Horsham, Pa.
2 Available at
3Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265 (1995).
4 See Lewis L. Maltby, Private Justice: Employment Arbitration and Civil Rights, 30 COLUMN. HUM. RTS. L. REV. 29, 54-55; Michael Delikat and Morris M. Kleiner, Comparing Litigation and Arbitration of Employment Disputes: Do Plaintiffs Better Vindicate Their Rights in Litigation?, A.B.A. CONFLICT MGMT, Vol. 6 Issue 3 (Winter, 2003).
5 See Bradford v. Rockwell Semiconductor Sys., Inc., 238 F.3d 549, 552 (4th Cir. 2001)(litiogating an employment claim costs $50,000 and takes 2.5 years); See Maltby supra note 3 at 55 (arbitrating an employment claim can cost only $3,000); See Public Citizen Arbitration Study Contains Errors, Half-Truths and Exaggerations, Scholar Says, May 3, 2002, available at (visited December 12, 2003).
6 See Maltby supra note 4 at 55; Delikat, supra note 4.
7 9 U.S.C. § 2.
8 Id.
9 Southland Corp. v. Keating, 465 U.S. 1 (1984).
10 Dobson, supra; see also Toledo v. Kaiser Permanente Med. Group, 987 F.Supp. 1174 (N.D. Cal. 1997).
11 Hightower v. GMRI, Inc., 272 F.3d (4th Cir. 1997).
12 Casarotto, supra.
13 Hill v. Gateway 2000, 105 F.3d 1147, 1148-49 (7th Cir. 1997).
14 Morrison, 983 F.Supp. At 943-44; Toledo v. Kaiser Permanente Med. Group, 987 F.Supp. 1174, 1180 (N.D. Cal 1997).
15 Id.
16 Madden v, Kaiser Found. Hosps., 131 Cal.Rptr 882, 890 (Cal. 1976).
17 Id.
18 Buraczynsky v. Eyring, 919 S.W.2d 314, 319 (Tenn. 1996).
19 Id.
20 Armendariz v. Foundation Health Psychcare Servs., Inc., 99 Cal.Rptr.2d 745 (Cal 200); see also Circuit City Stores, Inc. v. Adams, 2002 WL 152986 (9th Cir. 2002).
21 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991)(establishing that a statutory claim may be subject to a mandatory arbitration agreement only if a party is able to fully vindicate statutory claims); Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000) (establishing that this determination of fair costs to individuals must be made on a case-by-case basis).
22 Randolph, supra, (citing the Forum Code).
23 Engalla v. Permanente Medical Group, Inc., 54 Cal.Rptr. 2d 843, 862 (1997).
24 Id.

Keith Maurer serves as the Assistant General Counsel for the National Arbitration Forum, one of the largest providers of alternative dispute resolution services. He is a certified mediator and arbitrator. For a copy of "Drafting Arbitration Clauses," which includes sample language and drafting tips, contact him at