Is ADR the Rx for Malpractice?
By Armando Leone, Jr.
Health care alternative dispute resolution (ADR) and enterprise liability keep surfacing as key elements of health care reform.1 Under the enterprise liability theory, responsibility and liability for medical malpractice shifts from the individual physician to the health maintenance organization (HMO) and effectively provides immunity to individual providers from medical malpractice actions. Physicians are not named as defendants in malpractice suits with enterprise liability but assume the limited role of fact witnesses. The HMO becomes legally accountable for the actions of its physicians and becomes more responsible for the quality of its patient care.2 With the expanding role of HMOs in the delivery of health care in the United States, the benefits of enterprise liability will also increase, especially if an improved mechanism for resolving health care disputes through alternative dispute resolution (ADR) can be developed.3
Despite resistance by the American Medical Association, enterprise liability already exists and can be found within the Veterans Administration System and at some large staff-model HMOs.4 The advantage of enterprise liability is that it can be implemented without changing the underlying tort system.5 Enterprise liability cuts the administrative costs of litigation, frees doctors from personal liability concerns, tempers defensive medicine and boosts incentives for aggressive quality monitoring by the HMO. Thus, enterprise liability can also offset a growing concern that the quality of health care provided by HMOs is lower than that under the traditional system.6 Because of these potential benefits, enterprise liability is the focus of several federally funded state demonstration projects under the Clinton Health Care Reform Plan.
With the increasing integration of physicians in HMOs, enterprise liability is a logical development and furthers the goals of health care reform. Instead of payment by individual patients, physicians are increasingly paid by an HMO on a capitation basis and fee-for-service compensation is decreasing.7 Capitation payments are set monthly payments for each patient in the physician’s practice covered by the HMO and cover all the treatment needed for its subscribers. In turn, HMOs offer subscribers comprehensive care for one set price, which includes treatment by a primary care physician and specialists who address specific needs. The collective treatment by physicians and the payment relationships in an HMO make enterprise liability a more appropriate way to deal with medical malpractice claims than by separate claims against individual physicians.
Administrative tort costs, such as multiple amendments of pleadings which is common practice in today’s medical malpractice litigation, would be markedly decreased. Plaintiffs would bring suit against the HMO, and the overall care provided by the HMO physicians would be evaluated within the context of a single pleading. By having a single defendant, difficulties in settling meritorious claims because different physicians are insured by different insurance companies would also be reduced.
Legal Theories of Enterprise Liability
Enterprise liability has been upheld by the courts in multiple jurisdictions under several different legal theories. As more physicians become salaried HMO employees instead of traditional independent contractors, vicarious liability because of respondent superior will increase.8 Furthermore, the increased participation of utilization review personnel in patient care decisions creates a direct liability for the HM0.9 Health care guidelines being established by medical societies and HMOs could create yet another basis for HMO liability.10
Recently, some courts have held that the Employee Retirement Income Security Act (ERISA) can apply to pre-empt state law claims against HMOs which do not actually provide health care services and are more akin to insurers than providers.11 Whether Congress intended to shield HMOs from liability under ERISA in this fashion is questionable and legislative debate on this question may be forthcoming. However, the enterprise liability theory still applies to HMOs that actually provide health care.
The New Jersey Health Maintenance Organization Act (N.J.S.A. 26:2J-l et. seq.) authorizes the State Commissioner of Health to grant certificates of authority to HMOs that are in compliance with the statute, but it does not grant immunity for medical malpractice to the HMO itself. In Robbins v. HIP of New Jersey, the defendant/HMO’s motion for summary judgment based on statutory immunity was denied. The legislative intent of the statute was not to immunize the HMO itself, but to immunize persons participating in the HMO who did not actually provide health care services. The Robbins court held that it was highly unlikely that the legislature would immunize HMOs from the ordinary rule of respondent superior so that only the employee/physician of an HMO, and not the HMO itself, would be responsible for negligent provision of health care. The Robbins court noted that N.f.S.A. 26:2J-12 requires each HMO to submit an annual report which states the number, amount, and disposition of malpractice claims settled during the year by the HMO and any of the providers used by it.
The strength of respondent superior liability varies with the specific physician/HMO employment relationship. Currently, some physicians are strictly salaried employees of an HMO, and in these situations the respondent superior principle is strongest. Other HMOs prepay physicians on the capitation basis at the beginning of each month for all medical services needed by its subscribers within each physician’s practice. Since the payment is not tied to the actual services rendered, this physician/HMO relationship may have more in common with the salaried HMO physician-employee than with the traditional independent physician contractor. HMOs that pay physicians according to pre- determined rates on a fee-for-service basis after they are rendered appear the least likely to incur liability through respondent superior. Accordingly, an HMO’s vicarious liability exposure depends on the specific physician/HMO relationship in the plan.
Concurrent utilization review decisions which adversely affect a sub- scriber’s health care also can create liability for the HMO. In Wilson v. Blue Cross of California, the utilization review department of the decedent’s health insurance refused to authorize more than 11 days of in-patient psychiatric treatment, even though the treating physician determined that three to four weeks of in-hospital care was required. The decedent was discharged from the hospital and committed suicide shortly there- after. The decedent’s family brought an action against Blue Cross for wrongful death. The Wilson court determined that the sole reason for the discharge of the decedent before the time recommended by the treating physician was that no insurance or money was available for any further in-patient benefits.
The Wilson court cited the Second Restatement of Torts §431 for the proposition that joint liability exists whenever a defendant’s conduct is a substantial factor in bringing about the harm to the plaintiff and denied the HMO’s motion for summary judgment. The treating physician testified that further in-patient care was needed and that premature termination of the hospital stay, within a reasonable degree of medical certainty, caused the death of the insured. It was held a triable issue of fact as to whether the refusal to allow the decedent to stay in me hospital was a substantial factor in bringing about his death. The availability of an avenue of appeal of the utilization review decision to limit hospitalization, alone, failed to prove, as a matter of law, that the injury was unrelated to the denial of benefits. Accordingly, concurrent utilization review which denies health insurance benefits that adversely affect the patient’s care is a source of direct liability for HMOs.
Health care guidelines are assuming a larger role in the delivery of health care and create potential liability for HMOs. As HMOs develop treatment guidelines for member physicians in order to assure a uniform level of care and to minimize associated costs, the standard of care espoused by the guide- lines becomes a potential liability for the HMO that utilizes them. If patient subscribers suffer injuries under treatment guidelines later found to be at variance with the community’s standard of medical care, the proponent of the guidelines could become liable.12
As discussed above, enterprise liability already exists even without legislative enactment. As vertical and horizontal integration within the health care industry increases, enterprise liability can also be expected to increase. If a more effective mechanism for resolving health care disputes can be combined with enterprise liability, the benefits will outweigh any potential disadvantages.
ADR Is An Effective Solution
Alternative dispute resolution is particularly suited for resolving health care disputes in an enterprise liability system. It is more appropriate for a malpractice arbitration plan to be presented to HMO subscribers by the health plan representative than by the individual physician in a treatment setting. Alternative dispute resolution is also part of the various health care reform plans, including the President’s Health Security Act.13 However, proposals calling for non-binding arbitration screening panels fall short of its goal of relieving the malpractice crisis.14 Unless arbitration is binding, neither party prepares the case for a full presentation with the idea that it is best to keep something in reserve for use at the trial when the claim will really be decided. Furthermore, without binding arbitration, the losing side in arbitration gets two bites of the apple, and the benefits of reduced resolution time are lost.
Voluntary binding arbitration coupled with mediation can reduce the financial and emotional transaction costs of providing health care by the HMO and actually increase the quality of the care it provides. HMOs have a vested interest in resolving claims of malpractice against them in a way which preserves the HMO-subscriber relationship and the morale of its physician-employees. Arbitration resolves disputes with less hostility than litigation and allows the parties to continue their relationship into the future.15 Previously, a malpractice claim meant the end of the individual physician-patient relationship. However, with the increasing role of HMOs, the HMO-subscriber relationship continues despite a malpractice claim against any individual HMO physician.16
A majority of patients who file malpractice claims seeks emotional vindication as well as money damages.17 Arbitration provides a private forum where patients can vent their feelings without going to court. Equally important, physicians can have the merits of the claim assessed in a forum which is far less threatening than litigation. Malpractice litigation is a major life stress for most physicians that causes depression, anxiety disorders and even suicide.18 By decreasing the physician’s anxiety about medical malpractice litigation, arbitration reduces the practice of defensive medicine. Defensive medicine leads to higher health care costs, and the federal government estimates that defensive medicine costs alone approach $15 billion a year.19 Reducing physician’s litigation anxiety will allow a healthier physician- patient relationship and decrease the costs of defensive medicine.
Even though arbitration is conducted in a confidential private hearing, the discovery of incompetent or impaired physicians need not be impeded. Currently, payments for claims against physicians are required by law to be reported to the National Practitioner Data Bank.20 The Clinton Plan is encouraging HMOs to issue “Health Care Report Cards,” and HMOs that have incompetent physicians will be identified. One of the greatest obstacles to resolving meritorious claims is the physician’s reluctance to have the award or settlement entered into the National Data Bank. Therefore, it is reasonable to expect that HMOs will monitor the performances of its member physicians as part of its risk management program and will be aware of any one physician repeatedly found to engage in negligent treatment. If HMOs aggressively monitor physician performance, the need for the National Data Bank would decrease and could possibly be eliminated. However, an arbitration panel could easily apportion any liability among the physicians whose care is at issue and submit this information to the National Data Bank.
General Principles of Malpractice Arbitration
Every court that has addressed the issue has held that medical malpractice claims may be properly submitted to arbitration.21 These agreements are testimony required to prove and defend against a claim. The cost of expert testimony in litigation is so high that some commentators have even discussed payment of experts by a contingency fee in order not to deter meritorious claims.32 With mediators and arbitrators who have a familiarity with medical issues, the parties do not have to educate the dispute resolvers to the extent required in litigation.33 Authoritative medical texts could be used as some evidence of the applicable standard of care. Instead of relying on live testimony, arbitrators could accept the written expert reports without necessarily requiring live testimony. The arbitrators could even appoint a single neutral expert to testify in complex cases and include the fee as a cost of the proceeding.34
Savings in Time and Costs
The Kaiser Permanente health plan in Oakland, Calif., has previously reported that voluntary binding arbitration of medical malpractice cases decreased the average resolution time from 33 months in a lawsuit to 19 months in arbitration. While the average trial lasted several weeks, arbitration hearings lasted 2 to 4 days. Furthermore, there were fewer excessive plaintiff awards.35 Some hospitals using arbitration to resolve malpractice claims have reduced the net average time expended defending against claims by 22%. This faster resolution time correlated with a 21% overall reduction in defense costs. Most importantly, the defense costs of resolving frivolous claims were reduced by 59%. Despite concerns of insurers, the frequency of claims filed against the hospitals also dropped by 63%. Kaiser’s statistics indicate that it has had an increase in subscribers and also in consumer satisfaction.36
The American College of Obstetricians and Gynecologists has limited statistics indicating that in California, where ADR is most widely utilized in the resolution of malpractice claims, its members resolve their malpractice claims more quickly and for less money than the national average.37 More recently. Duke University Medical Center instituted a comprehensive ADR program in its health services agreements with the assistance of the AAA to cover all health care disputes that arise between its physicians, patients and the administration.38
Expertise, Objectivity, Integrity
The mediator or arbitration panel should not favor the interests of either party. Some states require three-member arbitrator panels-a lawyer, a health care expert, and a lay person.39 The NHLA has developed specific Rules and Procedures for Health Care Alternative Dispute Resolution and has organized an extensive panel of experts to adjudicate these claims. The NHLA rules provide that if the agreement does not specify the number of arbitrators, the dispute shall be heard and determined by one arbitrator.40 The AAA has also recently adopted Health Care Claim Settlement Procedures.41 Because arbitration renders a final judgment, the integrity of the arbitration process is essential to its acceptance by the public. The rules and procedures of reputable organizations, like the NHLA and the AAA, should govern any arbitration agreement between the HMO and its subscribers.
While health care arbitration developed in the context of the traditional physician-patient health care system, it is even more appropriate now that HMOs are assuming both increased liability and an increased role in the delivery of health care. Subscribers now look to the HMO for their health care and desire a continuing relationship. HMOs have a mandate to provide quality health care at competitive prices. ADR offers a practical and fair solution to these problems when properly integrated into private health care contracts.
H.R. 3600, 103rd Cong., 2nd Sess. (1994); B. McCormack, “Enterprise Liability Backers Stand Firm,” American Medical News (June 21, 1993), pp. 1,22.
K. S. Abraham & P. C. Wheeler, Organizational Liability for Medical Malpractice: An Alternative to Individual Health Care Provider Liability for Hospital-Related Malpractice (March 1993).
R. Winslow, “HMOs Are Expected To Deliver Strong Profit Growth,” Wall St. J. (Jan. 17, 1994) p. B4, col. 3. M. Mitka, “HMO Industry Stabilizes, Diversifies; Enrollment Up,” American Medical News (July 19, 1993) p. 7.
B. McCormack, “Enterprise Liability Out: AMA Steering Toward Traditional Tort Reforms,” American Medical News (June 28, 1993), pp. 1,22.
B. McCormack, “A Mixed Bag for Doctors: Draft Plan Offers Some Tort Relief,” American Medical News (September 27, 1993), pp. 1,20.
M. Freudenheim, “Many Patients Unhappy with HMOs,” New York Times (August 18, 1993) p. A14. H. F. Wachsman, “Some HMO Practices Put Patients At . Risk,” Wall St. J. (June 6, 1993) p. A15, col. 2.
B. Edelman, “RSNA Taking On Health Reform,” Radiology Today (October 1993, Vol. 10, No. 10). pp. 1,32-35.
Robbins v. HIP of New Jersey, 264 N.J. Super. 572 (Law Div. 1993); Dunn v. Praiss, 256 N.J. Super. 180 (App. Div.), cert. denied, 130 NJ. 20 (1992). See also K. Jespersen, “Probing HMO Malpractice Liability,” 132 N.J.L.J. 1046-1050 (Dec. 21,1992).
Wilson v. Blue Cross of California, 222 Cal. at 3d 660, 270 Cal. Rptr. 876 (Ct. App, 2d Dist. 1990). See also Wickline v. State of California, 1992 Cal. at 3d 1630, 239 Cal. Rptr. 810 (Court C.T. App. 2d Dist. 1987).
A. Leone, “Guidelines Now Set Liability Standards,” 133 NJLJ 1599, 1620-1621 (April 26, 1993).
29 U.S.C. § 1001 et seq.; Butler v. Wu, 1994 U.S. Dist. LEXIS 5647 (D.C.N.J., April 22,1994).
D. Singer, U.S. Health Plan Will Include ADR, Dispute Resolution Times (Winter 1993/94) at 1; H.R. 3600, 103rd Cong., 2nd Sess. (1994);
Hughes v. Blue Cross of Northern California, 215 Cal. at 3d 832, 263 Cal. Rptr. 850 (C.T. App. 1st Dist. 1989).
“Administration’s Health Security Act, Title V, Section D, Medical Malpractice,” proposed legislation released Oct. 27, 1993, Tax Notes Today (Oct. 30, 1993). D. Margolick, “Clinton Stirs Unease on Medical Malpractice,” New York Times (Sept. 24, 1993) p. A26. R. Sherman, “Health Plan Addresses Antitrust, Malpractice,” National Law Journal cal (Sept. 23, 1993) p. 9
E. D. Britcher and A. Leone, “Clinton Healthcare Plan Is Afflicted with Bias,” N.J.L.J. 1250 (July 25, 1994) at 10; N. Bendavid, re “Medical Malpractice Plan Is Classic Clinton,” 135 N.J.L.J. 461, 479 (September 27, 1993).
J. S. Murray and E. F. Sherman, Process of Dispute Resolution: The Role of Lawyers (Foundation Press; 1989) p. 287. C. S. Meschievitz, “Mediation and Malpractice; Problems with Definition and Implementation,” Law and Contemporary Problems (1991) 54: pp. 195-215.
Nelson, L. J., “Medical Mal practice: An Alternative Dispute Resolution,” American Journal of , Trial Advocacy (1987) 10: pp. 345-363.
F. H. Miller, “Medical Malpractice Litigation: Do the British Have a Better Remedy?” American Journal of Law & Med. (1986) 11: pp. 433-463.
J. R. Wilbert, S. C. Charles, R. B. Warneck, and R. Lichtenberg, “Coping With the Stress of Malpractice Litigation,” Illinois Med. J. (1987) 171 (1): 23-27. R. E. Waltman, “Sued for Being There, M. D. Laments the Pressure to Settle,” American Medical News (September 7, 1992) p. 30. E. C. Folks, “You and Malpractice Stress: III. Two Spouses’ View- “g A Colonel of Social Value?” /. ce Med. Assoc. GA. (1986) 75: pp. 723-725. E. C. Folks, “You and Malpractice Stress: V. A Death in the Family,” J. Med. Assoc. GA. (1987) 76: pp. 115-116.
M R. Pear, “Clinton May Seek Lid on Doctor’s Fees and Liability Suits,” New York Times (Tuesday, March 9, 1993) p. Al, A15.
D. N. Gianelli, “Should It Go In the Bank? Officials Weigh Open Claims and Reporting Thresholds,” American Medical News (September 21, 1992) pp. 1, 29.
84 ALR3d 375-390, Arbitration of Medical Malpractice Claims (1978 & Supp. 1992). See for example, Pietrelli v. Peacock, 16 Cal. Rptr.2d 688 (Ct. App. 1993).
Broemmer v. Otto, 169 Ariz. 542, 821 P.2d 204 (1991) (law of contracts applies and binding medical malpractice arbitration agreement enforceable); Sanchez v. Sirmons, 121 Misc.2d 248, 467 N.Y.S.2d 757 (Sup. Ct. Bronx Co., 1983); Zupan v.. Firestone, 91 A.D.2d 561, 457 N.Y.S.2d 43 (1st Dept. 1982); Guthrie v. Barda. 188 Colo, 124, 533 P.2d 487 (1975), rev’q, 34 Colo. App. 1, 523 P.2d 155 (1974).
Miner v. Walden, 101 Misc.2d 814, 422 N.Y.S.2d 335 (Sup. Ct. Queens Co. 1979); Wolfman v. Herbstritt, 114 A.D.2d 955, 495 N.Y.S.2d 220 (2d Dept. 1985). Guadano v. Long Island Plastic Surgical Group, P.C.. 607 F. Supp. 136 (E.D.N.Y. 1982).
Ala. Code Section 6-5-485 (1977); Alaska Stat. Sect. 09.55.535(b) (Cum. Supp. 1983); Cal. Civ. Proc. Code Sect. 1295 (West 1982); Ga. Code Ann. Sect. 9-9-110 et seq.(Michie 1982); Ill. Ann. Stat. ch. 10 Sections 201 et seq. (West 1975 & Supp. 1992); La Rev. Stat. Ann. Sections 9:4230 et seq. (West 1991); Mich. Comp. Laws Ann. Sections 600.5040 et seq. (West 1987); Ohio Rev. Code Ann. Section 2711.21 et seq. (Banks Baldwin 1991); S. D. Codified Laws Ann. Chapter 21-25B (Michie 1987); Vt. Stat. Ann. Tit. 12 Section 7001 et seq. (Equity 1973 & Supp. 1991); Va. Code Section 8.01-581.1 et seq. (Michie 1992).
Cal. Civ. Proc. Code s. 1295(b) (West 1982).
Ill. Ann. Stat. ch. 10 Sections 202(d) and 209 (West 1975 & Supp. 1992).
See for example, Mich. Comp. Laws. Ann Sections 600.5040 et seq. (West 1987).
Note, “Medical Malpractice Arbitration: Time for a Model Act,” Rutgers L. Reo. 1981; 33: pp. 454-501. M. Geyelin, “Judges, More Than Juries, Side with Personal-Injury Plaintiffs,” Wall Street J. (July 23, 1992) p. Bl.
Mich Comp. Laws Ann. s.s. 600.5041 (West 1987).
L. J. Nelson, “Medical Malpractice and Alternative Dispute Resolution,” American Journal of Trial Advocacy, (1987) 10: pp. 345-363.
A. K. Hutkin, “Resolving the Medical Malpractice Crisis: Alternatives to Litigation,” Journal of Law and Health (1990), 4(1), pp. 21-55.
G. R. Lea, “Expert Witness-Right to Pay Expert Witness a Contingent-Fee Basis in Civil Cases,” West Virginia L. Rev. (1978) 80: pp. 328-339.
“Committee on Complementary Dispute Resolution,” New Jersey Law J. (February 24, 1992) pp. S50-52.
N.Y. CPLR Section 7559(c).
“Arbitration Seldom Used in Medical Malpractice Cases, GAO Discovers,” Daily Report For Executives (The Bureau of t National Affairs: January 14, a 1992) DER 9: pp. A12-13.
D. Lawrence, “The Market Is Already Doing It,” Wall St. ]. (March 16, 1994) at A18, Col. 4.
D. H. Heintz. “Medical Malpractice Arbitration: A Viable Alternative,” Arbitration ]. (1979) 34(4), pp. 12-18.
Note, “Medical Malpractice Arbitration: Time for a Model Act,” Supra, note 27. See for example, Mich. Comp. Laws Ann s. 600.5044(2) (West 1987) (three arbitrators selected from list provided by AAA with one physician or hospital administrator, one attorney-chairperson, and one lay person who is not an insurance or hospital representative).
NHLA Alternative Dispute Resolution Service, Rules of Procedure for Arbitration 1.04 (Effective August 5,1991).
American Arbitration Association Health Care Claim Settlement Procedures Rules 2 and 7 (Effective
A. Leone, Is ADR the Rx for Malpractice?, Dispute Resolution Journal, Vol. 49, No. 3 at 7-13 (Sept. 1994.