Healthcare Neutral ADR Blog

Could ObamaCare Cause Hospitals To Lose Tax Exempt Status?

Richard J. Webb — Tue, 18 Sep 2012 20:04:00 -0500

I just read an interesting post by David Whelan on The Health Care Blog. In short, he points out that on full implementation, ObamaCare will drastically reduce the number of uninsured patients seen at most tax exempt hospitals in the United States. Since uninsured patients currently make up the bulk of the "charitable care" required for hospitals to maintain tax exempt status, will the virtual disappearance of the uninsured mean that hospitals can no longer justify their tax exemption? Remember - the fact that a payor (governmental or otherwise) pays less than cost generally does not qualify a patient's care as "charitable."

As Mr. Whelan points out, tax exempt hospitals are already working hard to demonstrate they provide the level of "community benefit" required by the IRS, and the dramatic reduction of uninsured could come on rapidly. One possible response is a political solution that mandates a recognition of "charitable" work in the form of below cost services to minimally insured patients. The problem there will be that for-profit hospitals will likely be saddled with the same sort of "charitable" underpayment from their patient mix.

It may be, as Mr. Whelan suggests, that tax exempt hospitals will need to turn to something truly different from what their for-profit competitors do in order to justify tax exemption in the post-ObamaCare world. That will take some real collaboration by all of the hospitals' constituencies. It won't be as easy as dropping some money in the meter.

[Image: A kindness meter, using a former parking meter, which allows people to donate money to charity rather than giving it directly to panhandlers, August 16, 2011, Ottowa, Canada, by OttawaAC.]

AHLA Offers Enhanced ADR Training Opportunities

Richard J. Webb — Mon, 10 Sep 2012 09:45:00 -0500

For many years, the American Health Lawyers Association ("AHLA") Alternative Dispute Resolution Service has offered basic (one day) training courses in arbitration and mediation. I just heard from Geoff Drucker, Manager of the ADR Service, that the Service is taking a big step towards expanding its educational and service capabilities.

From October 19-21, the ADR Service will provide some enhanced arbitration and mediation training opportunities. Offered in partnership with Hamline University School of Law (one of the nation's preeminent ADR and health law programs), the training sessions will be held in Minneapolis, MN. Details are available on the AHLA website.

As Geoff explained it, these training sessions will break from the past in that (1) they will be longer and thereby permit more in-depth coverage of the material through role playing; (2) they will take place at a university conference center rather than a hotel meeting room; and (3) they will embody the quality associated with programs at Hamline.

The courses' instructors appear to be top notch. The two and one-half day mediation training will be given by Debra Gerardi, President of Emerging Healthcare Communities ("EHCCO") and Professor Sharon Press of Hamline School of Law's Dispute Resolution Institute. The one and one-half day arbitration training will be given by a panel of experienced health law arbitrators from around the country, including Marcia Augsburger, Elise Dunitz Brennan, Anthony DiLeo, and Michael Jordan. Debra Gerardi will speak at a joint plenary luncheon.

According to Geoff, the ADR Service's foray into more in-depth training is hopefully the first of other steps to improve its offerings. On the horizon may be higher training requirements for neutrals who are new to the Service (with these new courses meeting that higher standard). He also sees the potential for an entire AHLA conference devoted to ADR (similar to the AHLA's regular subject matter offerings, e.g., Medicare/Medicaid, Tax Exempt Organizations, Antitrust, Fraud & Abuse). Both of these would be welcome developments.

Registration for these training sessions is limited. You can register here.

[Image: University Hall - Old Main, Hamline University, Saint Paul, MN, March 19, 2008, by William Wesen]

NJ Bar Health Law Section Opens With Program On Health Reform

Richard J. Webb — Tue, 04 Sep 2012 17:06:00 -0500

The New Jersey State Bar Association's Health Law Section kicks off its 2012-2013 meeting year on September 11th with a program entitled: "Health Reform Is Alive And Well...Sort Of...The View From Providers And Insurers." It begins with a light dinner at 6:00 p.m. at the Law Center in New Brunswick.

Three outstanding speakers will address the current status of the Affordable Care Act from the standpoint of hospitals, physicians and health insurers, the client constituency groups represented by most members of the Health Law Section.

Russ Molloy, Esq., V.P. of Government Relations at Meridian Health, will examine the law's impact on hospitals, including the aftermath of the recent Supreme Court decision, and the political climate in New Jersey for Medicaid expansion and a health insurance exchange.

Lawrence Downs, Esq., CEO and General Counsel of the Medical Society of New Jersey, will address the effects of the ACA on practicing physicians in New Jersey.

Wardell Sanders, Esq., President of the New Jersey Association of Health Plans, will discuss insurance market reforms under the ACA, including health insurance exchanges, essential health benefits, reinsurance, risk adjustment and risk corridors.

The program has been approved for 1.6 Credits (50 minute hour) by NJ ICLE. If you attend, please stop by and say hello.

[Image: Impending Storm, by David Wright, September 25, 2005]

Ken Feinberg (And Me!) On How To Settle A Dispute

Richard J. Webb — Tue, 31 Jul 2012 09:26:00 -0500

Ken Feinberg is probably America's most well-known neutral - an attorney, mediator and special master in administering mega-settlements such as those formed to compensate the victims of the 9/11 attacks, the Virginia Tech massacre and the BP Gulf Coast oil spill. Although some might say its not difficult to make everyone happy when you have virtually unlimited funds to disburse, not everyone is happy with the outcome of his work, and that's probably how it should be.

Having read about his work and heard Mr. Feinberg speak in person, he impresses me as someone who deserves the recognition he's achieved. That's why I was anxious to learn what he had to say when asked about his "priority list" for how to settle a dispute. Appearing in the 7/29/12 NY Times one page magazine (hat tip to the ADR Prof Blog), Mr. Feinberg told Spencer Bailey -

In all the negotiations I do, there's a priority list: One, know the facts. Two, be dogged. Three, keep an open mind. Next, be creative in getting to "yes." Finally, a very important basic proposition: Put yourself in the other person's shoes.

Amazing, I thought to myself. These are exactly the priorities I would have listed in answer to the same question. What does that tell me? It probably says that I've had some great mediation instructors, and enough experience to have learned what works and what doesn't.

It is quite another matter to have the ability to carry out the priorities Mr. Feinberg identifies. That's where the work really begins. Harder still is convincing parties to mediation (and their counsel) that you know the right priorities and have the ability to make mediation worth their effort. Ken Feinberg has their trust and confidence when he walks in the room. The rest of us work to earn it every chance we get.

[Image: Ken Feinberg, NY Daily News photo, 2010]

Should Mandatory Arbitration Be Regulated?

Richard J. Webb — Wed, 25 Jul 2012 15:20:00 -0500

"Mandatory arbitration" provisions have come under harsh criticism in recent years. (Since all pre-dispute agreements to arbitrate are "mandatory," it would be more precise to state that pre-dispute arbitration agreements between parties with unequal bargaining power have raised concerns about their "fairness," but I will use the shorthand "mandatory arbitration" here.) Such provisions are common in consumer, financial and employment agreements, and increasingly seen in healthcare. Opponents of mandatory arbitration assert that agreements to arbitrate in certain circumstances can be fair only if freely entered into after a dispute arises. The proposed Arbitration Fairness Act of 2009 (now 2011) adopts this stance, and would render unenforceable all pre-dispute arbitration agreements in employment, consumer, franchise and civil rights matters.

A welcome alternative to the drumbeat of the "Arbitration Fairness" movement is presented by Miles B. Farmer's Note in the Yale Law Journal entitled "Mandatory and Fair? A Better System of Mandatory Arbitration." If you have any interest in the debate over "mandatory arbitration" and the Arbitration Fairness Act, I recommend that you read this Note in its entirety.

Mr. Farmer identifies arbitrator bias resulting from the "repeat player" phenomenon as the primary source of unfairness in mandatory arbitration. But he concludes that outlawing all predispute arbitration agreements between parties of unequal bargaining power would be like throwing the baby out with the bathwater. As he explains, the benefits to society and the parties from the widespread use of arbitration in these cases should be maintained.

The Note proposes the creation of a state or federal regulatory regime under which providers of arbitration services (e.g, the American Arbitration Association) would be required to report data on the selection and use of particular arbitrators for repeat players, and the arbitrators' awards in those repeat cases. Arbitration providers would be required to demonstrate that the arbitrator selection process resulted in decisions which, in the aggregate, appeared fair to both sides when compared with (i) a range of outcomes deemed "fair," and (ii) outcomes reported by other arbitration providers. A failure to report required data, to abide by the required arbitrator selection process, or to achieve a "fair" balance of outcomes (in the aggregate), would subject the arbitration provider and the drafter of the arbitration provision to an enforcement action by a designated law enforcement agency (including financial remedies).

Mr. Farmer would not provide for a challenge to the outcome of any particular arbitration award (thereby retaining each arbitration's finality, and avoiding preemption by the Federal Arbitration Act). Further, he would not provide for a private right of action to enforce the regulatory regime.

The Note focuses the attention of the "mandatory arbitration" debate where it belongs: on the abuses that can taint the outcomes in repeat player cases. It correctly rejects the Arbitration Fairness Act as overkill and protects individual arbitration awards from challenge by unhappy parties. Requiring arbitration providers to demonstrate fairness in the arbitrator selection process for repeat players would be feasible and effective, although I would prefer to see this occur as a result of market forces than by way of government regulation.

Where Mr. Farmer loses me is in the suggestion that the outcomes of all cases administered by an arbitration provider for a repeat player should be assessed, in the aggregate, for their "fairness." Although an arbitrator who ruled in favor of a repeat player in 100% of a large number of cases probably has some explaining to do, a "50-50" split of outcomes is not necessarily fair and just. A fair and just split is the one that results from the decisions of unbiased arbitrators appointed in accordance with the selection rules Mr. Farmer advocates, whatever that split may be. Setting a "50-50," "60-40," or any other split as the "fair" standard for arbitration providers to achieve would have the perverse result of requiring those providers to recruit, select and instruct their arbitrators on outcomes - exactly the kind of interference that created the original problem.

Rules for the selection of qualified, unbiased arbitrators should be strictly applied, as should ethical constraints relating to cases involving repeat players. A sufficient rotation of arbitrators should be appointed for any repeat player to assure that undue familiarity will not occur. Arbitration providers should embrace these efforts, and make them an important and transparent part of what they offer both parties to a "mandatory arbitration." But arbitration providers and the government should stay away from selecting particular arbitrators in an effort to assure some preconceived, "fair" mix of outcomes.

Bias for and bias against a repeat player are equally bad. You either trust the arbitrators you've picked or you don't. If you don't, you should look elsewhere.

NJ Bar Health Law Section Announces Programs For 2012-2013

Richard J. Webb — Wed, 18 Jul 2012 18:40:00 -0500

I am honored to serve as Chair of the New Jersey State Bar Association's Health Law Section for the upcoming year. The Section includes 446 members of the Bar who represent healthcare providers and other clients relating to the health care field. The Section's Board recently approved a schedule of meetings and programs that I'd like to share with you.

September 11, 2012 : The aftermath of the SCOTUS decision on the Affordable Care Act (Law Center)
October 19, 2012: Annual Health Law Symposium (Seton Hall Law School)
November 13, 2012: The View From Trenton After Election Day - NJ Commissioner of Health (invited) (Law Center)
December 11, 2012: Holiday reception and roundtable on in-house/outside counsel relationships and alternative fee arrangements (Law Center)
January 8, 2013: Brown bag lunch program on Ethics For Health Lawyers (law firms throughout NJ, t/b/d)
February 5, 2013: Medical Staff Due Process v. Hospital's Duty As Employer And A Hostile Work Environment (Law Center)
March 12, 2013: Joint program with NJ Hospital Association In-House Counsel on Current Tax Exemption Issues (NJHA, Princeton)
April 16, 2013: Alternative Dispute Resolution in Healthcare (Law Center)

These programs are open to all members of the NJSBA. If you are not a member, please consider joining, or request to attend as a guest. In most cases, CLE credits and dinner are provided, and you will not be disappointed. Contact me directly if you have any questions.

My Favorite Analysis Of Justice Roberts' Decision On The Affordable Care Act

Richard J. Webb — Mon, 16 Jul 2012 17:23:00 -0500

I recommend that you read Jeff Goldsmith writing in The HealthCare Blog. Be sure to watch the wrestling video.

Why Not More Corporate ADR?

Richard J. Webb — Mon, 25 Jun 2012 14:33:00 -0500

A fundamental premise of the alternative dispute resolution ("ADR") movement is that when properly applied, ADR can resolve most disputes faster, cheaper and better than conventional litigation. I'm convinced this is true, as are most ADR practitioners. When asked, most lawyers will say something positive about ADR, but fall short of endorsing its universal application (e.g., "I think ADR is great for the right case").

This week I noticed two articles that brought home just how far ADR has to go in penetrating the world of corporate and commercial disputes. Writing in Corporate Counsel at LAW.COM, Craig Bleifer listed 10 Questions CEOs Should Ask GCs About the Legal Business Plan. It's a thorough list that attempts to remind GCs that in-house legal operations should make sense from a business standpoint, just like every other major department of the corporation. Notably absent from the article are the words "alternative dispute resolution" or anything else to suggest a rethinking of how the company handles disputes.

I also noticed an article by Jennifer Smith on the Wall Street Journal's Law Blog entitled Getting More for Less. It covers an announcement by the Association of Corporate Counsel recognizing its 2012 Value Champions, "a handful of business and law firms who came up with innovative ways to boost efficiency and cut legal spending." The focus of the article is on alternative fee arrangements, and does not mention the use of ADR. It also ends by noting that smaller companies (under $5 billion in revenue) can't seem to benefit from alternative fee arrangements, which require "lawyers to predict outcomes and set the appropriate fees." (To be fair, in reviewing the actual ACC list, two of the firm's honored, Whirlpool and Wheeler Trigg, did emphasize an effort to seek "early resolution" of lawsuits, although not necessarily via ADR.)

Why the devotion to "efficiency" in using law firms but no mention of ADR? The forces that are pushing towards "efficiency" should be having the same effect on increasing the use of ADR in the corporate setting. I think this is not occurring because in-house counsel are still lawyers. They have been trained to think like their outside counsel, are often former outside counsel themselves, and spend much of their time talking with their outside counsel about their corporations' disputes. As for the outside counsel, litigators do what they know best: litigate. In addition, there are more of them now than ever before, all looking for the same work.

There are ways to bring the forces for efficiency and the value of ADR together. Success fee billing and ADR are made for each other. But more fundamentally, those who run corporations and manage their legal disputes need to be better "sold" on the value of ADR - a notion that does not fit neatly within the customs, habits and organizational structures of the law firms these same corporate leaders have come to trust and depend upon.

[Image: Large herd of red deer on Borrobol Estate, Scotland, November 1991, by Evelyn Simak]

AHLA ADR Service Adopts Code Of Ethics For Arbitrators In Commercial Disputes

Richard J. Webb — Tue, 12 Jun 2012 19:14:00 -0500

Today, the American Health Lawyers Association ("AHLA") Alternative Dispute Resolution Service ("ADR Service") advised its roster of Dispute Resolvers that the Executive Committee of the AHLA has adopted The Code of Ethics for Arbitrators in Commercial Disputes (the "Code"). This replaces the ADR Service's Code of Ethics for Arbitrators.

The Code was originally adopted by the American Arbitration Association ("AAA") in conjunction with the ABA, and is the standard used by the AAA and other ADR organizations nationwide. This change eliminates the need for arbitrators appointed by the ADR Service to apply a different set of standards from those they use in other settings.

[Image: Mirror Image, by Keith Ellwood, August 13, 2009]

Does Healthcare Reform Require Hospital v. Physician Power Struggle?

Richard J. Webb — Thu, 07 Jun 2012 17:42:00 -0500

Writing in John Goodman's Health Policy Blog, Larry Wedekind suggests that real healthcare reform will require physicians, not hospitals, to acquire control of our healthcare delivery system. His entire post is worth the read, but it can be summarized as follows:

1. All of the pilot programs and demonstration projects tried by the federal government to date have been disappointing at best.

2. The traditional pattern of de facto hospital control of the delivery system is like letting the fox guard the henhouse. Since hospitals need to fill beds and expand outpatient volume, their efforts to acquire physicians' practices and develop integrated delivery systems should be seen as thinly veiled efforts to feather their own nests.

3. Physicians alone are capable of taking action to improve their patients' health. By putting physicians "in charge" of the delivery system, patient-centered care coordination can become a reality.

Mr. Wedekind seems to assume that only one side can be "in charge" of the healthcare delivery system. What many hospitals now realize is that only by way of a jointly determined approach will most hospitals and many physicians survive.

Hospitals cannot prosper in the long run by simply "paying for referrals" and relying on volume rather than measurably improving their patients' health. Physicians lack the skill, time, facilities and capital required to build the infrastructure that patient-centered care coordination will require. Each side has what the other needs to succeed.

The trick will be how well and how quickly these parties are able to transform their historical relationships into a new and better way of doing business. Some hospitals and their medical staffs are well on their way, while others have yet to begin. All will encounter stumbling blocks along the way. In addition to the usual business issues that arise in any partnership or joint venture, the hospital-physician relationship is incredibly burdened by laws and regulations that preclude many arrangements that would be perfectly legal in any other industry.

The key for hospitals and physicians will be to realize that both parties have a hand on the steering wheel, and that a failure to steer in the same direction will be disastrous. Essential to this process will be having a means to identify and resolve conflicts early and effectively. Governance by litigation is not an option.

[Image: Two pilots prepare to launch from the carrier USS Harry S. Truman in the Persian Gulf, December 26, 2004]

Fifth Circuit Overturns Class Action Arbitration Decision

Richard J. Webb — Fri, 01 Jun 2012 12:22:00 -0500

In Reed v. Florida Metropolitan University, Inc., No. 11-50509 (5th Cir. May 18, 2012), the United States Court of Appeals for the Fifth Circuit ruled that an arbitrator exceeded his powers in finding the parties' agreement authorized class arbitration (hat tip to Victoria VanBuren at Disputing). The case is remarkably similar to Sutter v. Oxford Health Plans, in which the Third Circuit reached the opposite conclusion, as discussed here previously.

In Reed, the court found no express agreement to engage in class action arbitration, and refused to accept the arbitrator's interpretation of the parties' contract, which inferred class action intent from language referring to "any dispute." The court further rejected any argument that the absence of language prohibiting class action arbitration can be used to infer class action intent. In both regards, the Fifth Circuit based its opinion squarely on the Supreme Court's decision in Stolt-Nielsen.

You can't explain the different outcomes in Reed and Sutter by distinguishing them on the facts. The two courts clearly wanted to adopt very different views of Stolt-Nielsen. Other Circuits have addressed the issue as well. See, e.g., Jock v. Sterling Jewelers, 646 F.3d. 113 (2nd Cir. 2011). Drafters of arbitration clauses and those choosing their arbitration venue should act accordingly.

[Image: A fork in the road, by Nicholas Mutton, September 16, 2007]

"If I Were You..." Doesn't Work In Marketing Or Mediation

Richard J. Webb — Thu, 24 May 2012 10:56:00 -0500

Seth Godin, the marketing guru, author and master blogger wrote today at Seth's Blog about the common error of many trying to sell a product, service, idea or anything else to a less than receptive audience:

"If I were you..."

But of course, you're not.

And this is the most important component of strategic marketing: we're not our customer.

Empathy isn't dictated to us by a focus group or statistical analysis. Empathy is the powerful (and rare) ability to imagine what motivates someone else to act.

In any mediation, each side is trying to "sell" the other on its side of the dispute. Often, a party to a mediation will come into the process with a clear idea of what the other side should be doing instead of whatever it is that's creating the conflict. In essence, they are thinking, and sometimes saying, "if I were you, here's what I'd do."

What such parties are really saying is, "if you were me, here's what you would do." To Seth Godin's point, the other side is not you. What you would do is not that important to them.

What would be useful is each party trying to better understand what the other side is trying to do, and why. The more each party does this, the greater the chances they will see the ways in which both of their interests can be addressed. This is where the mediator comes in.

[Image: Two "street signs" at Boxwood Public School, March 9, 2010]

Litigating A Medical Practice Break-Up Is Rarely A Good Idea

Richard J. Webb — Fri, 18 May 2012 07:51:00 -0500

I observe the insides of medical practice business disputes on a regular basis, and I am always amazed at (1) how many similarities there are, and (2) how often the parties turn to litigation to resolve their differences. Similarities appear in the form of legal agreements that are less than perfect, or which, although technically sound, fail to expressly address a particular situation that comes to pass in the parties' relationship. Unfortunately, once physicians find themselves on opposite sides of one of these "gray areas" in their documents, they reflexively call in the cavalry, and the litigation battle begins.

Writing in the New York Business Divorce blog, Peter A. Mahler describes just such a situation in Anesthesiology Practice Undergoes "Legal Equivalent of a Proctology Exam" in Shareholder Dispute, dissecting the recent post-trial decision by Suffolk County Commercial Division Justice Emily Pines in Suffolk Anesthesiology Associates, P.C. v. Verdone, 2012 NY Slip Op 50728(U)(Sup.Ct. Suffolk County April 25, 2012). He fairly describes the case as "a bare-knuckles contest pitting an expelled physician-shareholder of a large Long Island anesthesiology practice against the 11 other physician shareholders."

I will not repeat Mr. Mahler's stellar synopsis of the case, including the court's pre-trial and post-trial rulings, which is worth the read. Familiar elements include an apparent power struggle, major business decisions favored by fewer than all of the shareholders, alleged "whistleblower" claims and some "tit for tat" good faith and fair dealing issues. The end result was a finding of some "breach" or "fault" by both sides, and an order that put them close to what a disinterested observer would have recommended from the very beginning.

Mr. Mahler observes that the absence of a particular provision in the parties' documents (involuntary termination without cause) probably inspired both sides to adopt the litigation posture they pursued. Similar omissions or the occurrence of unanticipated circumstances are often present in these cases. To me, the real question is why, time and time again, "divorcing" physicians in these circumstances and their lawyers escalate the litigation to what he calls "a DEFCON 1 situation in which each side has little choice but to launch their biggest missiles against the other, necessitating public disclosure of embarrassing and potentially troublesome information about the Practices."

To be fair, I know only what I read in the blog post and the court's post-trial decision, and it is possible there were facts that compelled this course of action. More likely, the familiar pattern of emotional clients making irrational decisions, and lawyers doing their best to litigate their way to victory, led to this result. The litigation started in October 2008 and went to trial in 2012. There were numerous interim proceedings and pre-trial motions. The trial lasted 11 days and included the testimony of 15 witnesses and over 100 exhibits. One can only imagine the total cost to both sides in legal fees, expenses and time lost from practicing medicine.

Mr. Mahler suggests that mandatory arbitration provisions in the parties' agreements would have saved them from public disclosure of their "dirty linen" and greatly shortened the time (and money) required to reach a resolution. I agree. But I find even more compelling the argument for mediation prior to any form of adjudicative proceedings. This appears to have been a textbook case of the parties having more than sufficient common interests and available resources to fairly defuse their dispute through mediation. The cost-benefit analysis of mediation in these cases is off the charts. Hopefully, "divorcing" physicians and their counsel will take heed.

Solving The Balance Billing Problem In New York And Elsewhere

Richard J. Webb — Fri, 11 May 2012 16:30:05 -0500

Over three years ago, I wrote here about the "balance billing" problem; in short, the practice of non-participating healthcare providers billing patients for the difference between the provider's charge and the out of network payment made by the patient's insurer/PPO ("payer"). As described by E.J. McMahon in Newsday, the problem in New York has taken an interesting turn, but come no closer to a satisfactory resolution.

When Governor Andrew Cuomo was New York's Attorney General, he investigated charges that the Ingenix database then used to set fees for out of network providers was skewed in favor of the payers who controlled it. A settlement resulted in the creation of an independent nonprofit company, "Fair Health," that generates a "usual and customary" fee database. In the meantime, some payers began the practice of paying non-participating providers on the basis of the (lower) Medicare fee schedule, and some providers began increasing their standard "charges" substantially in an effort to drive up the Fair Health rates. Non-participating providers unsatisfied with the Fair Health fees continue to bill their patients for the "balance owed" on the standard charge.

While some progress has been made, the fundamental problem remains. When a balance bill is created, one of three parties must be left "holding the bag:" the patient, the non-participating doctor or the payer. E.J. McMahon suggests that New York "should set up an arbitration process to resolve reimbursement disputes between insurers and physician, while shielding consumers from bills for disputed balances." I'll be the last one to object to the use of an ADR process to resolve these disputes, but some greater clarity is required.

Although politics and economics may favor an absolute "hold harmless" for patients in these cases, that result wouldn't always be fair, or sound policy. If a patient knowingly chooses to go to an out of network provider with full awareness that the charge will well exceed the payer's obligation to pay, why shouldn't the provider be able to collect the full charge from the patient? On the other hand, if the patient is unaware of the balance bill potential, or the magnitude of the difference, the patient should be off the hook. Rules can be adopted to define what the patient must be told, when and by whom.
Patients who are made aware of the potential differential and are unhappy with their predicament will likely complain to their payer, as they should. However, rather than focus on the provider's charges, the payer should make the patient aware of the other alternative providers, both in and out of network, who are available to provide the necessary service within the confines of the payer's allowable charge. If the alternative providers offered by the payer are too few, too inconvenient or otherwise unacceptable, that's a problem with the payer's network, not a "balance billing" problem, at least in the eyes of this patient.
For cases in which the patient is held harmless because he or she is unaware of the balance bill potential or its magnitude, the payer and the provider must find a way to agree on what the provider should be paid. This is where an ADR process would come into play. In order to avoid every case being contested, a presumption should be adopted with respect to the Fair Health fee schedule. That presumption could be the 100th percentile, the 80th or some other point on the schedule thought to fairly represent the usual and customary charge. Absent a protest by either party, this is what the provider would be paid. If either the provider or the payer objects to the presumption created under the Fair Health fee schedule, binding arbitration could be requested.
The role of the arbitrator would be to, de novo, determine fair and reasonable compensation for the provider under the particular circumstances. Using this standard, a world renowned surgeon with 30 years of experience and outstanding results might expect a higher fee than the presumptive schedule, whereas a new surgeon who simply charged well above the presumptive schedule might not fare as well.
To encourage good faith and fair play, both parties would submit their best and final offer to the arbitrator. Using so called "baseball arbitration" rules, the arbitrator would then hear the evidence in an expedited procedure and choose the one that best meets the standard of "fair and reasonable under the circumstances." The loser would pay the costs of the arbitration.

The process just described, or something like it, wouldn't make "balance billing" disappear, but it would be far superior to the confusion, expense and unfairness arising from the current, ad hoc litigation approach to the problem. Let's see if New York and other states agree.

[Image: A balanced (roseate spoon)bill.]

How Not To Conduct A Medical Staff Fair Hearing

Richard J. Webb — Wed, 02 May 2012 19:04:00 -0500

If you want to know what you shouldn't do when conducting a medical staff fair hearing, read the opinion of the Federal District Court for the Northern District of New Mexico in Osuagwu v. Gila Regional Medical Center (2012 U.S. LEXIS U325). Fellow Lexblogger Michael Cassidy brought this case to my attention via his Med Law Blog. Among other things, the hospital and medical staff leadership in this case:

1. Allowed one physician to act as the "investigator," the "prosecutor," an expert witness and a member of the hearing panel;

2. Did not provide the accused physician with the opportunity to cross examine the physicians who rendered expert opinions against him;

3. Did not make a reasonable effort to obtain all of the facts relevant to the cases under review; and

4. Did not clearly articulate the specific reasons for taking the harsh measure of indefinitely suspending the accused physician's privileges.

On the basis of these findings, the federal district court denied the hospital's motion for summary judgment under the immunity provisions of the Healthcare Quality Improvement Act ("HCQIA"). Since most hospitals' medical staff bylaws and fair hearing procedures are largely intended to assure the benefits of HCQIA immunity, and it is rarely denied, this case is noteworthy.

Michael Cassidy's post suggests that the admission of written expert reports without the opportunity for the accused to cross examine the expert was a factor in this case that may gain broader traction in medical staff hearing litigation. I hope not. As he points out, most medical staff bylaws relax the rules of evidence, and the admission of written reports without testimony is not uncommon. So long as the accused physician is offered the right to do the same, and if there is some in person expert testimony offered, an otherwise sound fair hearing should not fall outside HCQIA immunity solely by reason of including a hearsay expert report. It was a contributing factor in Osuagwa, but only because the rest of the hearing was so deficient.

[Image: Paul Gaugin's Chair (The Empty Chair), Vincent van Gogh, 1888]

Who Pays The Hospital - Medical Staff Standing Neutral?

Richard J. Webb — Fri, 20 Apr 2012 09:58:00 -0500

See my guest post today at Disputing: Who Pays the Hospital - Medical Staff Standing Neutral? This is a follow up to the four part series on the Hospital - Medical Staff Standing Neutral that appeared here (See Part I, Part II, Part III and Part IV). If you haven't seen it before, Disputing is a terrific ADR blog, and I'm grateful for the opportunity to appear there.

[Image: Pennybacker Bridge, Austin, Texas, 1997, by Eric Hunt]

Healthcare Subject Matter Expertise - An Arbitrator's Blessing or Curse?

Richard J. Webb — Tue, 10 Apr 2012 18:00:00 -0500

Today I listened to a roundtable discussion on "Handling Healthcare Arbitration Effectively" presented by the American Health Lawyers Association. The Panel offered valuable practical tips on drafting an arbitration clause and effectively representing a client in arbitration. From my perspective, the most interesting portion of the discussion concerned the role of healthcare industry expertise in the process of arbitrator selection.

One of the Panelists expressed the belief that experience with healthcare business and legal issues is rarely necessary for an arbitrator to effectively decide a case, so long as he or she is "experienced in handling complex commercial cases." In his view, an experienced arbitrator can learn all he needs to know about the healthcare law affecting a case in legal counsel's briefs and oral arguments.

I beg to differ. I do not believe that I can become an expert at anything by tomorrow. More importantly, even assuming an arbitrator can absorb the basic, "black letter law" on a given issue during the presentation of a case, it is impossible for that arbitrator to have any grasp of the nuances or "feel" of the law as it is applied in the real world. Often, it is in that nuanced, "gray" area of healthcare law and practice that the outcome of an arbitration must be decided.

Another Panelist addressed the process of selecting an arbitrator where industry expertise is desired, but there is a need to evaluate the potential arbitrators' "orientation." I think this was a polite way of saying that some clients may fear an arbitrator will be biased against them if the arbitrator's legal career was mostly spent "on the other side of the fence." Thus, for example, parties in a payor-provider dispute might look differently at potential arbitrators who had mainly represented health insurers versus those who had primarily represented hospitals. Although I certainly can understand this as a visceral reaction, it doesn't really hold up to scrutiny.

If parties want an arbitrator with subject matter expertise, they will be hard pressed to find one who has not had a successful legal practice primarily on one side or the other of the transactions and disputes typical in that field (think labor v. management, plaintiff v. defendant, insurer v. insured). So unless only one of the parties to an arbitration is concerned about the arbitrator's "orientation," there will be no agreement on an arbitrator with industry expertise.

More importantly, the focus on a potential arbitrator's "orientation" ignores the fact that the arbitrator is holding himself out as a neutral - with full awareness of the fact that setting personal feelings (if any) aside is essential to performing that service ethically and professionally. This is no different from the duty of a sitting judge in maintaining his neutrality. Unless an actual conflict of interest exists, judges and arbitrators should be assumed to be neutral - it is the essence of what they do. Would a person seeking to pursue this line of work expect to have much success if his or her decisions were skewed toward one category of litigants versus another?

Far better than attempting to predict the effects of a potential arbitrator's "orientation" is seeking the opinion of the marketplace on whether he or she is honest, open-minded and fair. Arbitrators who fail this market test will not be around for long.

[Image: Flower vendors in the Main Arcade, Pike Place Market, Seattle, Washington. To be allowed to sell here, vendors must grow the flowers themselves; by Joe Mabel, October 10, 2008]

Third Circuit Clarifies Class Arbitration Rule - Sort Of

Richard J. Webb — Wed, 04 Apr 2012 19:22:13 -0500

On April 3, 2012, the Third Circuit Court of Appeals released its opinion in Sutter v. Oxford Health Plans (No. 11-1773). The case is one of long-standing in New Jersey, involving allegations by Dr. Sutter that Oxford failed to make prompt and accurate payments for services rendered by Sutter under the parties' Primary Care Physician Agreement. That Agreement contained a provision that required arbitration of all claims arising under the Agreement, but did not specifically allow or prohibit class arbitration. The Court's current opinion addresses a challenge by Oxford to the arbitrator's ruling that the Agreement permitted class arbitration, notwithstanding the U.S. Supreme Court's decision in Stolt-Nielsen v. Animal Feeds International, 130 S.Ct. 1758 (2010).

In Stolt-Nielsen, the Supreme Court held that an arbitral panel exceeded its authority by permitting class arbitration when the parties had reached no agreement on that issue. Significantly, the parties in Stolt-Nielsen stipulated they never reached agreement on the permissibility of class arbitration when forming their agreement to arbitrate. On that record, the Court determined there was no basis on which the arbitrators could construe the parties' agreement to permit class arbitration. The Court held that the imposition of class arbitration requires a contractual basis for concluding that both parties agreed to permit it - but no requirement that class arbitration be expressly mentioned.

Against this backdrop, the Third Circuit in Sutter allowed the arbitrator wide latitude in interpreting the parties' intent under their Agreement. Since, unlike Stolt-Nielsen, the parties in Sutter did not stipulate the absence of an agreement on class arbitration, the arbitrator was free to broadly interpret the intent of their Agreement on the issue. He did so and found class arbitration to be permitted.

The arbitrator's rationale for finding an intent to permit class arbitration would seem to apply to most provisions that do not expressly prohibit class arbitration. Oxford made this argument to the Third Circuit, saying that affirming the arbitrator here would effectively require parties to expressly disclaim the use of class arbitration. The Court did not agree, stating that there still needs to be "some contractual basis" for the arbitrator's interpretation that class arbitration is permitted.

So where does that leave us?

1. An express statement of intent to permit class arbitration is not required for an arbitrator to allow it.

2. An express prohibition against class arbitration is not required for an arbitrator to deny it.

3. The arbitrator may not infer the parties' intent to permit class arbitration solely from the fact of their agreement to arbitrate.

4. The arbitrator may find an intent to permit class arbitration in the construction of an agreement that neither expressly permits nor expressly prohibits class arbitration.

At least in the Third Circuit, and probably elsewhere, a party that feels strongly about class arbitration (one way or the other) would do well to include a statement of intent on this issue in the arbitration provision.

For parties that do not want to submit to class arbitration, the Third Circuit's analysis of the absence of a clause precluding class action arbitration is noteworthy:

"Stolt-Nielsen does prohibit an arbitrator from inferring parties' consent to class arbitration solely from their failure to preclude that procedure, but the arbitrator did not draw the proscribed inference in this case. Rather, the arbitrator construed the text of the arbitration agreement to authorize and require class arbitration. Then he observed that an express carve-out for class arbitration would have made it unavailable even under the clause's otherwise broad language. As the arbitrator later articulated when he revisited his construction of the clause in light of Stolt Nielsen, the lack of an express exclusion was merely corroborative of his primary holding that the parties' clause authorized class arbitration; it was not the basis of that holding. Thus, the arbitrator did not impermissibly infer the parties intent to authorize class arbitration from their failure to preclude it."

It is unclear how the Sutter Court knew when in the arbitrator's thought process the absence of a class action carve out became determinative (i.e., it can't be dispositive, but it can be corraborative?), although this conclusion appears essential to upholding the arbitrator's decision while squaring it with Stolt-Nielsen. But whether or not you can split this hair, counsel drafting arbitration provisions must acknowledge Sutter's practical effect, and act accordingly.

[Image: Photo of a split end, May 2,2011, by Milful]

Arbitrators Can't Rewrite Contracts

Richard J. Webb — Thu, 29 Mar 2012 10:30:45 -0500

An unpublished opinion from New Jersey's Appellate Division on March 28, 2012 serves to remind arbitrators of their proper role in resolving contractual disputes. It also debunks a common complaint by detractors of arbitration that it offers no meaningful right of appeal.

Knecht v. 225 River Street (A-4793-10T3) involved a contract by which Knecht agreed to purchase a luxury condo from 225 River Street. The contract required Knecht to pay a deposit of $299,250 towards a purchase price of $1,995,000, and included a mortgage contingency period of 90 days. Knecht did not obtain a mortgage commitment within 90 days, but did not then terminate the contract. Upon completing the project, 225 River Street called for a closing, and Knecht did not appear. 225 River Street kept the deposit money, and Knecht initiated arbitration as required by the parties' contract.

The arbitrator ruled in favor of Knecht and ordered the return of her deposit on the basis of the following:

(1) "both parties knew or should have known that financing could not be finalized in the ninety (90) day time limit";

(2) [Knecht] "used her reasonable best efforts, but failed to obtain a mortgage commitment" when the time came for closing;

(3) market conditions had changed; and

(4) both parties acted in good faith.

225 River Street filed a motion to vacate the arbitrator's award. The trial judge concluded that the arbitrator had exceeded the scope of his powers by disregarding the clear terms of the parties' contract, and accordingly, vacated the arbitrator's award.

On appeal, Knecht contended that a court's power to overturn an arbitrator's award is very limited. The Appellate Division generally agreed, but after a recitation of the limited grounds to do so, found that vacatur of the arbitrator's award in this case was proper. Specifically, the Court said:

"An arbitrator exceeds the scope of his powers when he disregards the terms of the parties' contract or rewrites the contract for the parties."

It is noteworthy that the Appellate Division did not question any of the four underpinnings of the arbitrator's award set forth above, all of which were essentially findings of fact. Further, the Appellate Court did not challenge whether the outcome under the arbitrator's award was fair.

The message is clear. Parties should expect arbitrators to enforce their contract as written, and judicial review can assure that result.

[Image: D.W. Griffith, Mary Pickford, Charlie Chaplin (seated) and Douglas Fairbanks at the signing of the contract establishing United Artists motion picture studio in 1919. Lawyers Albert Banzhaf (left) and Dennis O'Brien (right) stand in the background. From the New York World-Telegram & Sun collection.]

American Arbitration Association Calls For Muscular Arbitration

Richard J. Webb — Tue, 20 Mar 2012 16:05:00 -0500

Last week I attended the American Arbitration Association's Neutrals Conference, held this year in Scottsdale, Arizona. Over 300 AAA neutrals (arbitrators and mediators) from across the country and overseas attended the event. The AAA uses the Neutrals Conference as an opportunity to present a topical educational program and to impart some "common wisdom" thought to be vital to the entire AAA community.

A dominant theme throughout the Neutrals Conference was the perceived belief among users of arbitration services that arbitration has lost its way - that a process designed to be faster, less expensive and more effective than conventional litigation is often too slow, too costly and no better than going to court. While pointing out statistics to demonstrate that this perception is not well founded, the AAA acknowledges that for providers of arbitration services, user perceptions are reality.

Continuing a theme introduced through a number of AAA educational programs in 2011, the 2012 Neutrals Conference promoted the concept of "muscular arbitration." In essence, muscular arbitration refers to an arbitration process that is designed and administered by AAA and its arbitrators to minimize or eliminate unnecessary litigation-like efforts by arbitration parties and their counsel. "Trimming the fat" requires a comprehensive and well-run preliminary hearing, minimal and time limited discovery and a creative approach to the presentation of evidence at the hearing. This approach closely follows the guidance provided by the College of Commercial Arbitrators' 2010 Protocols for Expeditious, Cost-Effective Commercial Arbitration.

For the most part, the speakers at the Neutrals Conference were preaching to the converted, although learning more techniques on how to run a muscular arbitration was worth the trip. The real challenge for the AAA and all proponents of arbitration will be getting the other stakeholders in the game (i.e., parties/in-house counsel and their outside counsel) to "buy in." The same folks who may have the perception that arbitration has become no better than litigation must acknowledge they have some share of the responsibility for that result.

Lawyers who want arbitration to be quick, inexpensive and fair cannot insist upon taking 5 depositions per side and conducting 10 days of hearings in every case. The AAA and its arbitrators can recommend the most efficient process possible, and attempt to persuade the parties and their counsel to accept it, but they can't force them to agree. Thus, every arbitration is both an opportunity for the arbitrator to deploy muscular techniques and an educational moment that shouldn't be missed.

[Image: SRD Posing Bodybuilder, July 24, 2004]