Liability Review
FEATURED ARTICLE
The arbitration alternative to medical negligence litigation
By Barry D. Halpern
Physicians are increasingly convinced that the medical malpractice litigation system is seriously flawed. Although proponents of the system-principally plaintiff personal injury lawyers-tout the need to compensate "victims" and police the health care profession, there is little evidence that the current system does either of those things effectively.
First, although defendants generally win a disproportionate share of the cases alleging medical negligence that are actually tried, the risks and costs of litigation force a far greater number of cases to settle. The theory that medical liability litigation serves the public interest is belied by the fact that malpractice claims represent only the small and essentially random subset of iatrogenic injury cases that have the dollar recovery potential to justify a plaintiff lawyer's very substantial investment of time and resources.
Because fee and transaction costs consume roughly 50 percent of a recovery, even successful plaintiffs are not always "made whole" economically, while others receive windfalls from rapidly escalating, economically unjustifiable settlements and verdicts that become the baselines for negotiations in future cases.
Rising malpractice awards and settlements have significant economic effect not only upon physicians and health care institutions that pay the indemnity costs and insurance premiums for liability claim protection, but upon patients and those who pay for health care directly or though employee benefit plans. These health care industry costs, though substantial, are dwarfed by the judicial system's multi-billion dollar price tag for administering the nation's tort system. The cumulative "litigation tax" imposed upon the health care delivery system is both enormous and disproportionately borne by physicians operating under government mandates and patient demands that make the medical profession largely responsible for the availability, cost and quality of the nation's health care.
Despite physicians' increasing frustration with escalating malpractice expenses and insurance costs, tort reform bills languish with no hope of passage in the US Senate and two provisions of Arizona's state constitution have been interpreted by the state supreme court to prohibit limits on personal injury awards or substantial modifications of the law of negligence. These seemingly insurmountable systemic obstacles to changing a largely dysfunctional litigation system have led to calls for alternative dispute resolution systems designed to resolve medical injury claims in a more fair, efficient and scientifically grounded manner.
Private binding arbitration, a non-judicial method of determining legal responsibility and compensation for iatrogenic injuries, may be the most viable currently available alternative to the tort system.
What Is arbitration?
Arbitration is a method of resolving disputes outside of the typical litigation process. Arbitration may be either a private, contractually agreed upon process or a judicially supervised adjunct to the litigation process. In Arizona, court-ordered and supervised arbitration is non-binding because the Arizona constitution has been interpreted to prohibit the state government from denying parties jury trials for most types of claims, including personal injury actions. Parties may, however, voluntarily agree to resolve existing or prospective claims through mutually agreed non-judicial arbitration.
Voluntary contractual arbitration may take many forms. There may be one or more arbitrators selected under criteria agreed upon by the parties. Arbitration decisions may be binding or non-binding. If binding, arbitration awards are enforceable by courts as judgments. Arbitration procedures may be agreed upon in advance by the parties to an arbitration agreement and the location, law or rules to be applied by the arbitrators and scope of discovery are subject to negotiation and agreement. Arbitration provides consenting parties considerable procedural latitude and control over the location, format, pace and participants in the dispute resolution process. Unlike typical litigation, which is a largely public process, contractual arbitration can be private, leaving the parties substantial control over the type and quantity of information that may become public.
Although in some instances arbitration agreements have been drafted to limit remedies, such as prohibiting the award of punitive damages or capping non-economic damages, courts are increasingly reluctant to enforce such provisions, particularly in cases involving civil rights, employment or personal injury claims. Non-consensual arbitration provisions, imposed as a condition of employment or as a pre-condition to receiving health care are not favored by the courts that retain the authority to decide whether a case is subject to arbitration and whether an arbitration decision is entitled to judicial recognition and enforcement.
Arbitration agreements between physicians and patients are closely scrutinized by courts to assess fundamental fairness, but they are not per se invalid. A fairly written arbitration agreement would be judicially enforceable if it is equally binding upon the parties and not presented on a grossly unfair "take it or leave it" basis in which the patient is deprived of meaningful options. Both Arizona and federal arbitration statutes recognize that the arbitration process can serve the interest of both the parties and the public. Under the Federal Arbitration Act ("FAA"), arbitration agreements are entitled to recognition and enforcement by state courts under the same standards that apply to other contracts. A fair and clearly written arbitration agreement between an Arizona physician and a patient should be effective and enforceable.
Making medical arbitration agreements enforceable
Because of the nature of the physician-patient relationship and a history of judicial resistance to "non-consensual" medical practice arbitration agreements, the following features, drawn from reported appellate court decisions, could substantially improve the prospects for the enforcement of a contractual arbitration provision.
Mutually binding - The agreement should commit both parties to be bound by an arbitration decision. The arbitration agreement and format for arbitration proceedings should not unfairly favor the physician by binding the patient while allowing the physician to "escape" from an unfavorable arbitration result.
Clarity and "reasonable expectations" - An arbitration provision should be written clearly in easily readable type that is printed on a separate piece of paper. An arbitration provision should not be buried among unrelated terms in multi-subject documents. The arbitration document should be labeled "Physician-Patient Arbitration Agreement" and it should state prominently in bold (perhaps colored) type that, by signing this contract, the patient gives up the right to a jury or trial in state or federal court of claims against the physician. The prospects for enforcing the agreement could be improved by stating that the agreement will be automatically renewed annually unless canceled in writing by the patient or physician before a specified renewal date.
Explanation of arbitration - The patient should have the opportunity to question the costs and effect of an arbitration agreement and designated members of the physician's staff should be able and willing to intelligently discuss the agreement with patients. The arbitration agreement should not be simply pushed across the counter with insurance and medical history forms. The patient's attention should be drawn to the document with the offer to explain and discuss its terms and implications. The physician should designate and train a person to discuss the agreement with patients and document the discussion in the manner of an "informed consent." A clearly and fairly written pamphlet explaining the arbitration process can be useful not only to address arbitration-related questions, but to inform patients about the impact of litigation on health care. The patient should be asked to acknowledge in writing that a thorough explanation of the agreement was offered and provided.
Opportunity to revoke - To minimize potential claims of duress or coercion, patients should be given a reasonable period of time (30 days works well in a typical office practice) in which to revoke their agreement to arbitrate. Terms such as this, which provide a unilateral benefit to the patient, enhance the fairness of the agreement, thus strengthening its prospects for judicial approval and enforcement.
Selection of arbitrators - Providing the patient the right to participate in the selection of arbitrators is a hallmark of fairness. Panels of three arbitrators, which are commonly used in commercial litigation, could be selected from lists of qualified arbitrators provided by The American Arbitration Association, The Center for Public Resources Institute for Dispute Resolution or many other respectable dispute resolution groups. Having each party choose one arbitrator, with the two selected by the parties to select a third, is also a common and generally accepted approach. However arbitrators are selected, patients should be assured a fair and active voice in the process.
Copies of arbitration documents to patients - Promptly providing the patient a complete set of the signed arbitration documents, perhaps in a clearly labeled portfolio, helps eliminate claims of misunderstanding, confusion or the unilateral imposition of terms not reasonably expected. Because courts look closely at contracting parties' "reasonable expectations," providing a comprehensive package of arbitration documents can be quite important.
Is arbitration worth the effort?
There is no present consensus among lawyers and insurance professionals on the capacity of arbitration to reduce the indemnity and transaction costs associated with medical liability claims.
Because arbitration has not been used widely in medical liability litigation, it remains to be seen whether arbitration proves to be less expensive than the current system.
Some insurance industry and economic commentators predict that the widespread use of arbitration would lead to more frequent claims. They also observe that, over the past decade, court decisions have imposed increasingly stringent procedural standards on arbitration agreements, thus tending to make arbitrations look very much like typical litigation. Perhaps most significantly, insurers who typically pay the defense costs fear that arbitrators tend to "split the baby" to award compensation in cases that could be successfully defended in a traditional trial. Physicians should consult their professional liability insurance companies before entering into arbitration agreements with patients.
Those concerns are balanced against the parties' capacity to control much more of the process in arbitration than they could in judicial litigation. Privacy, discovery limitations, place of hearing, rules of procedure and evidence and pace of proceedings are largely within the control of the parties to well-crafted arbitration agreements. Arbitrators are also generally considered substantially less likely to make an excessive award than a lay jury.
As long as procedures are fair and mutually agreed, arbitration can take many efficient and cost-effective forms tailored to the needs of a specific profession or industry. The resolution of medical liability claims are a particularly fertile arena for fair and creative arbitration approaches. Traditional "malpractice" litigation is slow, unpredictable, expensive and skewed toward catastrophic cases with significant jury appeal and high money damage potential. Arbitration could provide patients and physicians a quicker, equally fair and potentially cheaper forum to resolve iatrogenic injury cases.
Although the ultimate cumulative savings of widely employed medical claim arbitration cannot be predicted with precision, the benefits of a predictable and informed panel of decision makers and greater process control make arbitration an attractive alternative. The litigation system has largely failed both the medical profession and its patients. The time is ripe to find and try better alternatives.
Barry Halpern is a partner with Snell & Wilmer, one of the west's largest business law firms, with offices in Arizona, California, Nevada, Colorado and Utah. Mr. Halpern's practice focuses upon trials, health care and business matters.
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