Attorneys advising healthcare providers and health plans frequently recommend controlling risk in a number of ways that have proven effective. A comprehensive insurance plan, patient safety protocols, identifying and reducing medical error, and staff training are mainstays of healthcare risk management. These factors are important in controlling the spiraling costs of providing medical care.
Yet despite the best efforts of healthcare risk managers and staff, disputes are inevitable. In fact, each year litigation costs have skyrocketed. Considering this, one factor in controlling legal risk in healthcare should not be overlooked: the careful planning of how disputes that do arise will be resolved outside of court.
Savvy organizations and the attorneys who advise them view effective dispute resolution as a vital component of successful risk management. They not only think carefully about the dispute resolution process, but help design processes that control and reduce the cost of disputes that may arise.
The Futility Of Lawsuits
The primary rationale underlying our legal system was to provide disputing parties with a just, speedy, and inexpensive system to resolve their disagreements. Unfortunately, the litigation system no longer can do what it once promised. The enormous expense, delays, and complexities of the litigation process are well documented.
The ripple effects of costly litigation are felt throughout the healthcare system and throughout the entire economy. Premium and legal costs are passed on to consumers, furthering patient dissatisfaction with the healthcare system. Moreover, the threat of high legal costs is a major impediment to quality care. Medical errors are more likely to go unreported, thus severely inhibiting open discussion of flaws and failures.
The Promise Of Healthcare ADR
Disputes ranging from a hospital billing claim, to a medical malpractice claim, or to a physician group contract claim can invariably be resolved more efficiently and more effectively by means other than a lawsuit. Healthcare providers and insurers are increasingly turning to alternative dispute resolution ("ADR") processes - primarily mediation and arbitration - as a way to resolve disputes and address rising legal costs.
Mediation. Mediation consists of confidential negotiations facilitated by a third-party neutral - the mediator - whose role is limited to helping parties arrive at a mutually agreeable resolution to the dispute. Parties may select a mediator of their choice, including selecting from a roster of neutrals offered by ADR administrators with healthcare panels such as the National Arbitration Forum ("NAF"). By doing so, parties are assured of a mediator that has been carefully screened, is a highly qualified legal professional with expertise in healthcare, and one that is subject to strict ethical and due process protocols.
Mediation offers parties many advantages over litigation:
Studies have repeatedly shown that mediation, including mediation in the context of healthcare disputes, is far less costly than litigation.
In an era when it may take as long as five years to get a court date, and several more years to final resolution if a case is appealed, studies have shown that mediation provides a more expeditious way of resolving healthcare disputes.
Within the medical community, many believe that an apology serves to prevent future litigation. Mediation presents the best opportunity for the physician to offer the apology, and for parties to discuss quality improvement.
Arbitration. Arbitration is a streamlined hearing presided over by a third-party neutral - the arbitrator - resulting in an enforceable, final decision rendered by the arbitrator. The increased use of arbitration to resolve healthcare disputes has been fostered by jurisprudence that has largely supported the use of arbitration, including the enforcement of pre-dispute agreements to arbitrate.
Experts who have carefully studied and compared arbitration and litigation have repeatedly concluded that, like mediation, arbitration is far less expensive and much more efficient than traditional litigation. Studies also show that parties who use arbitration, including healthcare consumers, view the process as fair, and are satisfied with the process.
Drafting And Presenting The ADR Agreement
The most effective way for healthcare organizations and patients to ensure that disputes will be resolved through mediation and arbitration rather than lawsuits is by agreeing to these processes at the outset of their relationship, before disputes arise. This is best accomplished by including an ADR agreement in the admission documents when patients first seek treatment, or plan enrollment documents.
A healthcare ADR program, particularly one that includes an agreement to arbitrate, is nothing if the ADR agreement itself will not be enforced by a court. Drafting an agreement that accomplishes your goals and one that will also stand up to judicial scrutiny is paramount.
While the Federal Arbitration Act (FAA) preempts state statutory schemes that limit or restrict arbitration, state contract principles apply to whether agreements to arbitrate are valid and enforceable, just as they would to any other contract dispute arising under state law. Arbitration agreements between "businesses" and "consumers" are sometimes challenged on the grounds that they are unconscionable. Courts have overwhelmingly rejected these challenges and enforce these agreements. Courts are much more inclined to do so, however, when the arbitration agreement in question includes substantive and procedural safeguards that guard against perceived or actual unfairness to the "consumer" party.
The best starting point for an ADR agreement is to review the model clauses provided by reputable ADR administrators. Writing for the American Bar Association's Dispute Resolution Magazine, ADR experts Lawrence Mills and Thomas Brewer suggest the following:
To begin at the beginning, attorneys drafting ADR provisions should not overlook the considerable virtues of using a standard "all disputes" clause of the sort recommended by the major institutional ADR provider institutions such as the National Arbitration Forum ... Using such a clause has many advantages: Courts and arbitrators have construed them in thousands of cases and respect and understand them. Such clauses incorporate by reference all of the provisions covered by the provider institution's rules, thus making it unnecessary to draft lengthy provisions addressing discovery, the method for selecting the tribunal, preliminary relief, and numerous other matters. These are important advantages.1
Whether using a model clause from an ADR administrator or not, contract drafters and healthcare organizations should take into account the following guidance from the courts and from experienced health lawyers when drafting and presenting the agreement:
Provide a series of steps to try to resolve a dispute before it goes to arbitration. Such provisions might provide that when a claim or dispute arises, it first must be discussed and negotiated in good faith, informally. If the negotiations do not result in a settlement, the next step might be mediation, and finally arbitration.
The agreement should bind both the patient and provider, state that all disputes, including disputes regarding the enforceability and interpretation of the agreement, will be decided by the arbitrator. David Beck, general counsel for healthcare law at Beverly Enterprises, which operates more than 350 care facilities nationwide, states, "At Beverly, one of the safeguards that we employ is pure mutuality of obligation in the arbitration agreement: when a resident agrees with a facility to arbitrate, the agreement includes all potential resident claims, including liability claims, and all potential facility claims, including collections claims."2
Legal remedies that are available in court should also be available through arbitration. This is especially true where contracting parties do not possess equal bargaining power.
The cost of arbitration should not stand in the way of people bringing a claim. By referencing an ADR administrator's rules in agreements, drafters may automatically incorporate reasonable fee allocation among the parties.3
With arbitration, specify a location that is convenient for both parties.
Although courts generally hold that people are responsible for reading agreements they sign, the agreement should make it clear to the patient that he or she is agreeing to an alternative legal forum as an option to bringing a lawsuit.
Educating patients as to what they are getting in return - a fair, cost-effective method to resolve any future disputes - may serve to balance any uneasiness they may feel in signing such an agreement. Consider offering a "patient's guide" to ADR of the sort provided by healthcare ADR administrators. Encourage patients to ask questions.
Allow patients to "opt out" of arbitration provisions within a certain period from signing, to reduce complaints of adhesion and perceived unfairness.
State arbitration laws vary from one state to another. By invoking the FAA, healthcare organizations can use the same agreement in several states, and parties are assured that the agreement will be enforced according to its terms.
Dispute resolution provisions should not be an afterthought. Parties can draft dispute resolution provisions that provide early opportunities for resolution and lessen the need for more formal proceedings. If a dispute arises, parties can specify administrated rules to govern arbitration, ensuring that disputes will be resolved in legally-binding manner. As is the case with almost all aspects of an effective healthcare risk management program, spending time and thought on the front end will typically pay off substantially on the back end.
1 Lawrence R. Mills & Thomas J. Brewer, ADR Drafting Tips: Courts May Refuse to Enforce "Incoherent Hybrids" and Overreaching Provisions, Disp. Resol. Mag. (Spring 2002).
2 Interview with David Beck, General Counsel, Beverly Enterprises, in St. Paul, MN (Nov. 17, 2004).
3 See National Arbitration Forum Code of Procedure (July 2003), available at http://www.arb-forum.com/code/070103.doc.
Keith Maurer serves as Director of Healthcare and Insurance ADR Services and Assistant General Counsel for the National Arbitration Forum (NAF). NAF is a leading provider of ADR services to insurers, health providers and consumers.