Medical Malpractice: Can Hybrid ADR Be of Use
By Armand Leone Jr.
ADR is flexible. Any ADR process can be tailored to fit the needs of the parties and/or a particular set of circumstances. This can lead to the creation of interesting hybrids, one of which is the subject of this article. Lit-arb, a combination of litigation and arbitration, “provides the ultimate answer for resolving medical malpractice claims not already subject to voluntary binding arbitration, which arise in a managed care setting,” says author Armand Leone Jr. His article maintains these seemingly contradictory dispute resolution strategies may combine in a curiously effective mix under certain circumstances.
As managed care becomes the predominant form of healthcare delivery, there is a need for specialized ADR that can be used to resolve medical malpractice claims arising in the managed care setting. Although voluntary binding arbitration of malpractice claims is used by some HMOs in certain parts of the country with success and has been upheld at the highest state court levels, it has not been generally accepted.1
Plaintiffs, defense counsel and medical malpractice insurance carriers all proffer different reasons as to why ADR is not appropriate for the resolution of medical malpractice claims. Despite statistics that show otherwise, these beliefs have been difficult to change. A hybrid form of ADR combining litigation and arbitration (lit-arb) provides the ultimate answer for resolving medical malpractice claims not already subject to voluntary binding arbitration that arise in a managed care setting. With the increasing development of enterprise liability for HMOs and other health care delivery organizations, physicians, patients and the courts can all benefit from lit-arb.
Two forms of Enterprise Medical Liability have evolved: Delivery-Based Enterprise Medical Liability, where the responsible entity is the one delivering the health care, and Financing-Based Enterprise Medical Liability, where the responsible entity is the one paying for the health care.2
Recent state and federal court decisions have recognized the existence of Financing-Based Enterprise Medical Liability for healthcare payor organizations that provide managed care which negligently injures an insured. The states retain jurisdiction over these claims, because they are not preempted by ERISA.3
Liability is predicated upon several theories, including vicarious liability under respondeat superior and ostensible agency; corporate negligence based upon negligent selection and control of the plan’s physicians; corporate negligence based upon the plan’s independent actions; breach of contract and breach of warranty.
The law also recognizes Delivery-Based Enterprise Medical Liability claims against hospitals when treatment-related injuries occur. These theories include vicarious liability for employed physicians; ostensible agency liability for emergency and other physician services offered directly to patients by the hospital; and corporate liability for negligent credentialing and monitoring of staff physicians. In addition, hospitals are liable for the tortious acts of their non-medical personnel, such as nurses, technicians and attendants.
While both forms of Enterprise Liability currently exist, a Delivery-Based Enterprise Medical Liability System appears to most effectively promote the goals of medical injury prevention. The enterprises that actually deliver health care are in the best position to make decisions about optimizing the mix of potential risks and benefits associated with treatment of any particular patient’s medical condition. Neither an individual physician who is one component of the health care delivery system nor a health insurer that is primarily a vehicle for payment of the care given is well-situated to make critical decisions about improving the quality of medical care.4
Enterprise Medical Liability Systems further the goals of tort reform by promoting optimal prevention, by providing reasonable compensation to the negligently hurt and by minimizing the administrative costs of a fault-based liability system.5 Under the enterprise liability theory, responsibility and liability for medical malpractice in the managed care setting shift initially from individual physicians to the HMO or institution. Physicians are not named as individual defendants in a lawsuit for alleged malpractice, but assume the limited role of fact witnesses.
By combining Enterprise Medical Liability with available ADR, the efficient resolution of medical malpractice claims is enhanced. The enterprise becomes legally accountable for the actions of its physicians and for developing quality assurance programs for patient care. The cost of separate attorney representation of individual defendants would be eliminated and the finger pointing between individual defendants that impedes settlement would be reduced.6
What Enterprise Medical Liability proponents fail to address is how to apportion fault among the medical enterprise and the individual physicians who render the care.
HMOs and other managed care delivery organizations are now held both vicariously and independently liable for injuries to subscribers caused by the medical negligence of their providers. ERISA no longer provides a liability shield. In the context of the traditional tort system, managed care organizations and physicians have conflicting interests-the managed care organizations would prefer that physicians retain sole liability for malpractice claims, while physicians feel that managed care organizations should share responsibility for poor healthcare outcomes that result, in part, from the organization’s restrictions on the physician’s treatment options. By combining litigation and arbitration, lit-arb provides a unique solution for resolving malpractice claims in the managed care setting.
Dukes v. U.S. Healthcare7 held that the complete pre-emption exception to the well-pleaded complaint doctrine in Metropolitan Life Ins. Co. v. Taylor8 does not permit removal of state claims against HMOs for malpractice liability predicated upon theories of agency and direct negligence. The issue raised malpractice claims against HMOs concerns the quality of ERISA benefits, rather than a denial of benefits. Complete preemption of state law claims under ERISA exists only if state law claims involve ERISA’s civil enforcement provisions, which they do not. State law malpractice claims, without more also do not state a federal question, and the existence of a potential defense under ERISA does not allow removal of these claims either. Federal courts are simply without jurisdiction to remove malpractice claims against an HMO even under an ERISA plan.9
The result is logically correct, because patients should enjoy the right to be free from medical malpractice in a managed care setting regardless of whether or not their medical care is provided through an ERISA plan. When plaintiffs complain about the low quality of the medical treatment received, they are not contesting a denial of benefits under ERISA. In fact, the ERISA statute says nothing about the quality of benefits that are to be provided, but only speaks to whether or not benefits are provided. The civil enforcement provisions of ERISA simply do not contemplate a remedy for a plan participant who is hurt by medical malpractice.10 Thus, unlike the common practice before the Third Circuit’s decision in Dukes v. U.S. Healthcare, HMOs cannot remove state law malpractice claims based upon agency or direct negligence theories to federal court.11
Dunn v. Praiss
The specific issues addressed in the Dunn case were whether a breach of contract claim against the HMO by a patient could be a basis for contribution on a cross-claim by a plan’s physician and whether the physician’s cross-claim had been timely preserved during the trial. Although the physician had procedurally abandoned his cross-claim during the proceedings that precluded his claim for contribution from the HMO, the New Jersey Supreme Court held that the HMO could be liable in contribution for the patient’s injuries.
The Dunn court emphasized that the New Jersey HMO Act does not immunize managed care organizations from medical malpractice liability.12 The court went out of its way to clarify that, upon a sufficient showing of evidence, claims based upon vicarious liability, corporate negligence in selecting and controlling member physicians, direct corporate negligence and breach of contract or warranty can make an HMO liable for malpractice damages. This liability can be asserted directly by the plaintiff or by a co-defendant in a cross-claim for contribution. The court noted that indemnification agreements between HMOs and member physicians may effectively immunize HMOs from making payments based upon vicarious liability through agency or respondent superior. By expressio unius, exclusio alterius, the court indicated that the other liability theories have independent bases and leave HMOs responsible for their own share of the damages.
The basis for the contribution claim in Dunn was that the HMO failed to provide the coordination of care with and by the primary care physician, a feature emphasized in the HMO’s promotional literature. Accordingly, plaintiffs who allege injuries as a result of the plan’s failure to coordinate care between its member physicians can state a claim against the HMO for breach of contract and/or breach of warranty that causes injury. A direct claim would exist against an HMO, for example, when injury is caused by the failure of an abnormal test result to reach the attention of the primary care physician or by failing to authorize a medical specialty consultation. As a result, necessary treatment is not given to the patient or is unduly delayed, causing the disease to progress to a far advanced stage. Other claims against HMOs that cannot be passed off to co-defendant physicians through indemnification agreements are negligent credentialing claims, such as accepting physicians who lacked specialty certification, by failing to remove physicians who have committed repeated acts of negligence, or by giving privileges to physicians who have had prior disciplinary problems. Direct HMO liability can also exist when the plan is negligent in processing the plaintiffs medical care.
Lit-arb can improve the resolution process for medical malpractice claims arising in a managed care setting under either of the Enterprise Medical Liability theories. Lit-arb would require that a claim for medical malpractice, not otherwise subject to voluntary binding arbitration, be brought against the health care organization as the sole party defendant under the enterprise liability theory. Physicians would not be named as defendants. Liability would be predicated upon a showing by the plaintiff that the HMO or one of its health care providers deviated from accepted standards and that the deviation proximately caused injury. ADR would then be used to apportion liability for damages between the organization and the relevant health care professionals, after liability has been established by way of settlement or jury verdict in the lawsuit against the managed care provider.
Requiring a plaintiff to initially sue for damages against the HMO addresses the concerns of the insurance industry that the implementation of ADR increases medical malpractice claim filing frequency. This also addresses concerns of plaintiffs that professional dispute-resolvers are overly conservative and award damages that are substantially lower than those awarded by a jury. Equally important, the initial litigation preserves the right to appeal, something both the plaintiff and defense bar want to keep as a procedural safeguard.
The use of subsequent arbitration to apportion relative liability among the health care professionals and the managed care organization shields physicians from the turmoil of being named as party defendants in medical malpractice lawsuits. Unlike litigation, physicians can present expert opinions in a confidential ADR proceeding concerning the relative roles and culpability of the various health care providers, something which is not possible at trial when co-defendants are forced to present a unified defense.
Lit-arb reduces litigation transaction costs for plaintiffs, defendants and the courts by having one institutional defendant represent the interests of all the potential tortfeasors. Defense costs are decreased, because only one defense firm would need to be appointed initially to represent the HMO in the medical malpractice litigation. A jury at trial determines liability and overall damages to a plaintiff. A plaintiff’s transaction costs are also decreased, because there is only one named defendant with which to litigate the claim, and delays caused by multiple amendments to the pleadings to bring in additional defendants are avoided. The court’s transaction costs for resolving the malpractice claims decrease, since it is not dealing with multi-party litigation.
If there is a settlement or plaintiffs verdict, then the apportionment of fault among the HMO and its health care providers is determined through a less costly, confidential ADR proceeding. The potentially liable health care professionals can fully present their cases to expert arbitrators in the subsequent proceeding. Defendant physicians are often discouraged from introducing exculpatory evidence implicating other co-defendants at trial. Once any defendant says “There was malpractice, but it wasn’t me,” the trial game is over for all defendants. Expert witnesses can defend individual physicians in the confidential ADR proceeding without the fear of destroying a unified defense at trial. The dispute resolvers can apportion fault and damages among those who properly deserve it. Payment by physician insurance carriers and reports to the National Practitioners Data Bank can be made in accordance with the post-trial ADR findings.
Whether the medical enterprise is only vicariously liable or independently liable vis-a-vis its; health care providers is addressed only after liability for malpractice has been determined. If the ADR process finds the enterprise vicariously liable for the acts of its physicians, the indemnification provision applies to reimburse the entity and/or its insurer. If there are independent bases; for the enterprise’s liability and the physicians liability, the ADR process makes a fair apportionment of the fault between all involved.
See, for example, Buraczynski v. Eyring, 919 S.W. 2d. 314 (1996); Broemmer v.Otto, 169 Ariz. 542, 821 P.2d 204 (1991).
Compare K. S. Abraham, P. C. Weiler, “Enterprise Medical Liability and the Choice of the Responsible Enterprise,” 20 Am. J. L. and Med. 29, 30 (1994) (advocating delivery based enterprise medical liability) with W. M. Sage, K. E. Hastings, R. A. Berenson, “Enterprise Liability for Medical Malpractice and Health Care Quality Improvement,” 2O Am.J. L. & Med. 1, 11-12 (1994) (advocating financing based enterprise medical liability).
See Prudential Health Care Plan, Inc. v. Lewis, 1996 U.S. App. LEXIS 2595 (10th Cir. Feb. 21, 1996); Dukes v. U.S. Healthcare, 57 F.3d 350 (3rd Cir. 1995); Dunn v. Praiss, M.D., 139 N.J. 564, 656 A. 2d 413 (1995); Group Health Ass’n v. Blumenthal, 295 Md. 104, 453 A.2d 1198 (1983); Jennings v. Burgess, 39 Tex. Sup. Ct.J. 369, 917 S.W.2d 790, 1996 Tex. LEXIS 24 at 17 (J. Gonzalez, concurring); Raglin v. HMO Illimis. Inc., 230 Ill. App. 3d 642, 595 N.E.2d 153 (1992); Chase v. Independent Practice Assn., Inc., 31 Mass. App. Ct. 661, 583 N.E. 2d (1991). See also J. Perdue and S.R. Baxley, “Cutting Costs-Cutting Care: Can Texas Managed Health Care Systems and HMOs Be Liable for the Medical Malpractice of Physicians?”, 2427 St. Mary’s L.J. 23 (1995); J.J. Frankel, “Medical Malpractice Law and Health Care Cost Containment: Lessons for Reformers from the Clash of Cultures,” 103 Yale L.J. 1297 (1994); T. Schaper and T.A. Tamborlane, “A Quick Look at HMOs in New Jersey,” N.J.L., No. 173:8 (Dec. 1995).
Abraham, Weiler, supra, note 2, at 30.
See K.S. Abraham & P.C. Weiler, “Organizational Liability for Medical Malpractice: An Alternative to Individual Health Care Provider Liability for Hospital-Related Malpractice” (March 1993).
57 F.3d 350, 356 (3rd Cir. 1995).
481 U.S. 58,95 L.Ed.2d 55 (1987).
Supra, note 4, at 355.
See 29 U.S.C. sec. 1132.
See also Muller v. Maron, 1995 U.S. Dist. LEXIS 15048 (E.D. Pa., Oct. 13, 1995); Howard v. Sasson, M.D., 1995 U.S. Dist. LEXIS 14373 (E.D. Pa., Oct. 3, 1995).
See N.J.S.A. sec. 26:2J-1.
From: The Dispute Resolution Journal, Summer 1997 at 44