Healthcare Neutral ADR Blog

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]

Selecting A Hospital-Medical Staff Standing Neutral

Richard J. Webb — Tue, 13 Mar 2012 11:29:00 -0500

This fourth and final installment on the Hospital-Medical Staff Standing Neutral will address the neutral selection process. Previous posts introduced the concept, its advantages and relation to Joint Commission requirements, and how to define the neutral's role.

The essence of the standing neutral concept is: (1) an expert, neutral person is selected in advance by both parties to an ongoing transaction or relationship; (2) the neutral is given sufficient information to be familiar with the parties as problems arise; and (3) the neutral remains readily available to assist the parties in resolving disputes quickly and efficiently. The neutral selection process should reflect these expectations.

The process of selecting a hospital-medical staff standing neutral is best undertaken by a committee representative of the interests likely to be involved in the conflicts to be managed. On the hospital side, this might include a member of the board of trustees, the hospital CEO, the CMO and in-house counsel. On the medical staff side, the group might include the current president of the medical staff, the immediate past president or president elect, and the Chiefs of Medicine and Surgery. If hospital in-house counsel will participate, and the medical staff has regular independent counsel, medical staff counsel should also be included.

The selection committee should attempt to identify a person who can carry out the standing neutral's responsibilities. That person would be:

1. Neutral (i.e. have no no current or recent relationship with any of the parties);

2. Expert in the subject matter of the likely disputes (probably a lawyer specializing in hospital-physician matters);

3. Trained and experienced in dispute resolution processes;

4. Readily available as conflicts arise; and,

5. Cost effective.

Above all, the neutral selected should have the confidence of both the hospital and the medical staff.

With the selection of a qualified standing neutral and a commitment to the process of conflict management, hospitals and medical staffs can better face the challenges that threaten the relationships so vital to their existence.

[Image: Football referees at a Razorback game, October 6, 2007, by Belinda Hankins Miller]

NJ Bar Section Offers Brown Bag Lunch On Antitrust Developments In Healthcare

Richard J. Webb — Mon, 05 Mar 2012 15:42:00 -0500

The New Jersey State Bar Association's Health and Hospital Law Section is offering an interesting program in an alternative format. The program will address antitrust developments related to various forms of integration among healthcare providers: hospital - hospital, hospital - physician, and physician group - physician. Antitrust specialist David A. Ettinger, Esq. will speak on these subjects, with Frank R. Ciesla, Esq. focusing the discussion on the landscape in New Jersey.

The format for the program, a "brown bag lunch," is a first for the Section. Rather than an in-person presentation in the evening at one central location, this program will be offered on March 22 from 12:00 to 1:00 p.m. via teleconference at six law firms throughout the state. Choice of location can be made upon registration on the NJSBA website. CLE credit is included.

[Image: Lunch scene at the National Cancer Institute, 1989]

Part 3- Defining The Role Of The Hospital-Medical Staff Standing Neutral

Richard J. Webb — Wed, 29 Feb 2012 11:00:10 -0500

I previously introduced the concept of the hospital-medical staff standing neutral, and how satisfaction of Joint Commission conflict resolution requirements and other advantages argue for its use. This Part 3 of the series will turn to the potential roles a standing neutral can fulfill. There is no blueprint to follow on this, nor should there be. The parties are free to define both the functions to be performed by the standing neutral, and the kinds of disputes that will fall within the standing neutral's purview. The hospital and the medical staff will need to agree on these things up front.

In all cases, the essence of the concept is that the standing neutral is selected in advance of any dispute, is given information sufficient to be familiar with the parties as problems arise, and remains readily available to deal with disputes quickly and efficiently.

The functions to be performed by the standing neutral can span the range of dispute resolution processes. Some parties may simply want a standby facilitator, who can jump in to assist the parties when their direct negotiations have stalled. A step up from this would be a formal mediation process. Other parties may want the neutral to hear from both sides and offer a non-binding recommendation for the resolution of their disputes. The parties may want the neutral to make a binding decision, effectively acting as an arbitrator. The standing neutral also may serve as a hearing officer pursuant to the fair hearing procedures under the medical staff bylaws. All of these may be used in different circumstances, individually or in combination, as suited to the parties' situation.

As for the kinds of disputes that will fall within the standing neutral's purview, the parties may consider disputes arising from some or all of the following:

- proposed changes to medical staff bylaws, policies and rules

- "turf battles" between members of the medical staff and the executive committee and/or the board of trustees

- credentialing and discipline of individual practitioners

- implementation or restructuring of hospital physician payment initiatives, including managed care networks, Accountable Care Organizations and "gainsharing"

- "economic credentialing"

- hospital-physician joint ventures

Next up, selecting a hospital-medical staff standing neutral.

[Image: a child amateur boxing exhibition match in Union City, New Jersey, July 1, 2010, by Luigi Novi]

Supreme Court Rejects State Bar Of Nursing Home Arbitration Clauses

Richard J. Webb — Fri, 24 Feb 2012 15:45:00 -0500

On February 21, the U.S. Supreme Court vacated a 2011 ruling by West Virginia's highest court that found all predispute arbitration clauses in nursing home admission agreements were void as a matter of public policy. In Marmet Health Care Center v. Brown, the Supreme Court held that the Federal Arbitration Act ("FAA") preempts the West Virginia court's stated "public policy" because that policy prohibits the arbitration of a particular type of claim, a result clearly inconsistent with prior Supreme Court decisions interpreting the FAA.

The Supreme Court did leave open the possibility that on remand, the West Virginia court could find the particular arbitration provisions in question to be unenforceable because they are unconscionable under generally applicable state law principles (i.e., not just because they are contained in an arbitration agreement).

Marmet is consistent with the law in New Jersey interpreting the FAA as previously articulated in Estate of Ruszala v. Brookdale Living Communities and Moore v. Woman to Woman Obstetrics & Gynecology, which were discussed here previously. The question remains: will hospitals, physicians and other healthcare providers utilize admission agreements to require their patients to arbitrate later arising negligence claims? Although Marmet confirms that this door is wide open, providers will need to proceed with caution. Among other things:

- Is the provider's malpractice insurer on board?

- How far does the provider want to go to assure the arbitration clause will be sufficiently "fair" to be enforceable under state law? Should it contain a patient "opt out" feature?

- Is the clause consistent with the provider's existing philosophy towards patient lawsuits?

- Is the provider prepared for the public relations consequences?

- Who will arbitrate claims that are made, under which rules, and how will the arbitrators be selected? (Keep in mind that the American Arbitration Association and the American Health Lawyers ADR Service, as a matter of policy, do not accept patient malpractice claims arising from predispute arbitration agreements.)

These issues will play out for providers all over the country as they struggle to contain malpractice coverage expenses while competing for the ever-shrinking healthcare dollar.

[Image: Justice Icon with crossed gavels, March 6, 2010, by Svgalbertian]

State Courts, Lean Budgets And ADR

Richard J. Webb — Thu, 23 Feb 2012 10:57:00 -0500

"State courts across the United States are bracing for another year of austerity as a new budget cycle threatens once again to limit funding for the courts." So writes Sheri Qualters in the National Law Journal, as reprinted this week in the New Jersey Law Journal online edition (subscription required). Her story goes on to detail the problems faced by state courts nationwide, which depend on anemic state tax revenues for their funding. She further details the steps being taken by state courts to trim budgets and curtail services in an effort to balance the books.

New Jersey is no exception to this trend. In response to ever-increasing caseloads and budgetary constraints, the state's Administrative Office of the Courts recently issued a report in support of proposed legislation to increase filing fees and permanently dedicate the new revenue to improving the courts; specifically, the creation of an e-filing system and the funding of Legal Services of New Jersey.

Nowhere in the article cited above or the NJ AOC report is there mention of the role alternative dispute resolution can play in reducing the burdens on a state court system. In fact, the New Jersey judiciary is currently reevaluating the state's mandatory mediation program based on concerns that it diverts too many resources away from the administration of a growing civil case load. Many in the New Jersey ADR community fear that the current court mandated mediation program will be scrapped for "budgetary reasons." Both sides on this issue are missing the forest for the trees.

The railroad barons of the 19th century lost their preeminence because they thought they were in the railroad business when they were really in the transportation business. Apparently, those running state court systems today believe they are in the litigation business, when they should be in the dispute resolution business. There is a well established and competent (albeit private) community of ADR providers now operating in parallel with the state courts. That community stands ready willing and able to work in tandem with the court system to resolve disputes at virtually no additional cost to the taxpayers.

Previous efforts to integrate private ADR providers with the state courts (including the current New Jersey program) have encountered two major obstacles. First, the courts are reluctant (and some would say Constitutionally unable) to mandate any substitute for a trial in state court, particularly anything the litigants must pay for in addition to statutory filing fees. Second, the courts have been unable to assure the competence and quality of ADR providers in court annexed programs. However, neither of these obstacles is insurmountable.

This is where the ADR community needs to focus its attention. There is no question that ADR processes can dispose of most disputes more efficiently than litigation in state court. The legal community has had a generation of exposure to ADR, and is prepared to accept its use under the right circumstances. Creative minds can find a way to overcome the obstacles to a state court - private ADR system, thereby solving the current budgetary problem, yielding better outcomes and protecting the taxpayers.

Much more discussion and debate on how to overcome these obstacles must follow. For today, I can only suggest that we not write or accept further analyses of the "state court budget problem" that do not include a major role for ADR. Private ADR providers are to the state court systems what the interstate highways are to the railroads. Door to door delivery of all shipping containers by railroad is prohibitively inefficient and expensive. Let's stop making that mistake.

[Image: Unloading a shipping container with household contents, June 19, 2010, by Geo Swan]

NJSBA Offers Program On Decision-Making By Judges And Arbitrators

Richard J. Webb — Thu, 16 Feb 2012 14:08:12 -0500

"Decision-Making By Judges And Arbitrators - How Decisions Are Made And Influences On The Process" will be the subject of a program by the Dispute Resolution Section of the New Jersey State Bar Association at 6:30 p.m. on Tuesday, February 28, at the Law Center. This is the second program in a series, and follows one covered here previously. The panel for this program includes retired Judge John W. Bissell, John E. Sands and John R. Holsinger, all noted arbitrators. They will discuss how they go about deciding cases, how judges and arbitrators differ, and what advocates should and should not do to influence a decision in their client's favor.

I will be asking the panelists to address the role of "intuition" in the decision-making process. Four years ago I wrote here about a study that indicated state court judges are predominantly intuitive decision-makers, and intuitive judgments are often flawed. I see that as another reason to opt for arbitration, where a more deliberative approach and subject matter expertise can overcome intuition errors.

Registration is through the NJSBA. The program includes dinner and CLE credits. If you attend, please stop by and say hello.

[Image: Figurines representing three of the ten judges of Diyu, December 29, 2006, by Wafulz]

Part 2 - Joint Commission Conflict Resolution Requirements And The Advantages Of A Hospital-Medical Staff Standing Neutral

Richard J. Webb — Tue, 14 Feb 2012 09:46:00 -0500

I previously introduced the concept of the hospital-medical staff standing neutral. In this Part 2 of a series, I will cover relevant Joint Commission requirements, and the advantages and drawbacks of using a hospital-medical staff standing neutral to resolve conflicts between hospitals and their medical staffs.

Joint Commission Requirements

Joint Commission Leadership Standard LD.02.04.01 requires that "the hospital manages conflict between leadership groups to protect the quality and safety of care." The Elements of Performance supporting this standard require that "senior managers and leaders of the organized medical staff work with the governing body to develop an ongoing process for managing conflict among leadership groups."

Similarly, Joint Commission Medical Staff Standard MS.01.01.01 requires that "Medical Staff bylaws address self governance and accountability to the governing body, including by way of Element of Performance 10, which says in part:

"The organized medical staff has a process which is implemented to manage conflict between the medical staff and the medical executive committee on issues including, but not limited to, proposals to adopt a rule, regulation, or policy or an amendment thereto."

It is clear that the Joint Commission expects each hospital and its medical staff to have a dispute resolution mechanism in place. However, other than for the basic elements of the process (set forth in the Elements of Performance under LD.02.04.01), the Joint Commission leaves it up to each hospital and medical staff to fashion their own means of compliance. Most have simply adopted policies that mimic the Joint Commission's directives, but are short on detail, essentially leaving conflict resolution to a case-by-case process. Unfortunately, this typically results in the parties falling into their familiar routine: "lawyering up" and setting the litigation machine into motion. Establishment of a hospital-medical staff standing neutral fundamentally alters this habit - and its advantages far outweigh its drawbacks.

Advantages

1. Enables self-determination. The hospital and the medical staff remain in control of their relationship and the resolution of their differences, rather than abdicating to the legal system.

2. Saves time. The standing neutral can be activated at a moment's notice. Once involved, the neutral's use of alternative dispute resolution processes can bring about a resolution more quickly than traditional legal proceedings.

3. Less costly. The parties will spend less on lawyers and incur lower internal costs by resolving their disputes more quickly and efficiently.

4. Creates trust and confidence. Because the parties have jointly selected the standing neutral, and jointly defined the neutral's role, they can be confident that the process used to resolve their dispute will be fair.

5. Preserves relationships. Rather than "slugging it out" through legal proceedings, parties using a standing neutral are encouraged to cooperate in a process that will yield a fair result.

6. Reduces the occurrence of disputes. Experience in the use of standing neutrals in the construction industry suggests that parties using this mechanism come to have fewer dispute as time goes on. This occurs because that each party realizes its position on any given issue will be quickly and candidly reviewed by a neutral who will hold both parties to the same standard of good faith and reasonableness. This forum does not favor hyperbole, stonewalling, bluffing and other tactics common to the traditional legal process. Accordingly, parties over time tend to self-regulate their demands and positions to more naturally coalesce around their common objectives.

Drawbacks

The establishment of a hospital-medical staff standing neutral is not without some perceived drawbacks.

1. Cost. The cost of the standing neutral must be considered. However, when compared to the internal costs and legal fees associated with resolving disputes through conventional means, this cost is minimal.

2. Loss of control. Some parties and their legal counsel may feel that the presence of a third party neutral will interfere with the party's ability to "control" the handling of disputes that arise. But the neutral only has whatever authority the parties agree upon in advance. In reality, parties have far less "control" over the process and outcome of conventional litigation than they might think.

3. Fear of bias. If a party believes the standing neutral is biased towards the interests of the other party, the process is bound to fail. This is why both parties must participate actively in the selection of the standing neutral. It also means the neutral must work diligently to remain unbiased and appear to be unbiased throughout the engagement.

4. Confidentiality. Introduction of a standing neutral to the parties' discussions opens up the possibility that confidences will be disclosed. The parties must believe that the selected neutral will honor the obligations of confidentiality imposed under the parties' agreements and by law.

Next up, defining the role of the hospital-medical staff standing neutral.

[Image: Unbalanced scales, January 8, 2007, via Wikimedia Commons]

The Hospital-Medical Staff Standing Neutral - Part 1

Richard J. Webb — Tue, 07 Feb 2012 11:15:00 -0500

The idea of a "standing neutral" is well known within the construction industry, and has been used there in various forms for many years. The construction standing neutral is a trusted expert selected by the owner and the contractor at the outset of a project who remains available until the project's conclusion to assist the parties in resolving disputes as they arise. A standing neutral for construction projects works well because the parties have an ongoing relationship, and a mutual need to resolve disputes quickly and efficiently.

Hospitals and their organized medical staffs stand in a similar posture, but with even greater interdependence. Their relationship is ongoing, indeed, it's perpetual. Rather than a contractual arrangement in which the parties exchange money for goods and services, the relationships between hospitals and their medical staffs are symbiotic. The hospital needs the members of its medical staff to admit and care for patients, and needs the organized staff to oversee and regulate the practice of medicine within the hospital's facilities. The members of the medical staff need the facilities, equipment, nurses and other personnel that the hospital provides, and the physicians cannot afford.

The smooth functioning of the hospital-medical staff relationship is crucial to their common economic well-being. As forces beyond their control strain that relationship, conflicts will arise. Just as in the case of an ongoing construction project, the parties can choose to address these conflicts on an ad hoc basis, or proactively provide for a mechanism that stands ready to resolve conflicts as they arise: the hospital-medical staff standing neutral.

This is the first in a series of posts on this subject. It is drawn from an article I wrote in the September-October issue of the Physician Executive Journal ("PEJ") (subscription required). Future posts will address the advantages of a hospital-medical staff standing neutral, including Joint Commission standards on conflict resolution that favor its use; defining the role of the hospital-medical staff standing neutral; and the process for selection of a hospital-medical staff standing neutral.

[Image: Chair umpire referee on court 18 at Wimbledon 2006, via Wikimedia Commons]

ADR Can Help Lawyers "Win Cheap"

Richard J. Webb — Thu, 02 Feb 2012 12:56:35 -0500

I've been on a mission to convince fellow lawyers that encouraging clients to use mediation, arbitration and other alternative dispute resolution methods is good for clients and their lawyers. According to Dan Hull:

"Think like a client. The trick now is to win cheap.

For an experienced client, the cost of the lawsuit is part of the "victory" analysis. So is closure--or just getting it over with."

I can't say it any better, so I won't. Read on at What About Paris?

[Image: $620 in 31 twenty dollar bills, August 14, 2007, by Merzperson]

Request For Mediation Can Be A "First-Filed Action"

Richard J. Webb — Mon, 30 Jan 2012 17:40:00 -0500

The "first filed action" rule says that when lawsuits over the same dispute are filed in different states, the courts in both states will give the "first filed" action the exclusive right to go forward. Often described as a matter of "comity," the rule furthers the practical goals of certainty and efficiency within our federal system. However, as a matter of policy, the rule can be seen as unfavorable towards alternative dispute resolution. Counsel faced with the possibility of litigation in an unfriendly jurisdiction will often race to be the "first to file" a lawsuit rather than pursuing mediation. Not so in New Jersey anymore.

Last week, the Appellate Division of the Superior Court of New Jersey ruled that the "first filed action" rule applies when a party demands mediation or arbitration, as contractually obligated, and the other party later files a lawsuit in a different jurisdiction. In CTC Demolition Company, Inc. v. GMH AETC Management/Development LLC, et al (Docket No. A-3703-10T4), Judge Clarkson S. Fisher, Jr., wrote for a unanimous panel:

"Although the creation of the first-filed rule may have presupposed that the interplay of its principles would relate solely to which of two lawsuits should proceed to disposition, the proliferation of mediation and arbitration as an alternate but highly-favored method for resolving disputes since the first-filed rule's development, suggests the legitimacy of CTC's argument that its demand for mediation should be treated like the filing of a complaint.

...once mediation was demanded to occur in New Jersey, the later institution of the Pennsylvania action represented an untoward attempt to move the situs of this dispute, giving rise to special equity that warrants a disregarding of the Pennsylvania action."

This is great news for ADR in New Jersey, and hopefully elsewhere. Although this case was remanded to the trial judge for findings of fact on which of the parties' contracts applied to this dispute (raising the possibility that the contract providing for mediation would be held not to apply at all), the Court's holding on the first-filed action rule is clear. At least where the parties' agreement requires mediation before arbitration (or, presumably, litigation), a demand for mediation in New Jersey will trump a later filed lawsuit in another jurisdiction.

[Image:Brown filing cabinet, March 9, 2007, via Wikipedia Commons]

Garth Brooks' Hospital Lawsuit - Decision Error On Display?

Richard J. Webb — Thu, 26 Jan 2012 14:30:00 -0500

Garth Brooks was just awarded $1 million in a breach of contract lawsuit against his hometown hospital. Brooks alleged that the hospital reneged on its promise to build a women's health center in honor of his late mother, towards which Brooks contributed $500,000. Brooks asserted the hospital agreed to build and name the project when he made the contribution. The hospital said the donation was unconditional, and his requests for the naming rights came later. The women's center was never built, and the hospital told Brooks they intended to use his money for other construction projects.

Apparently, the jury believed Brooks' side of the story. They ruled that the hospital must return Brooks' $500,000 donation and pay him another $500,000 in punitive damages. Brooks is a home town hero, generally regarded as a likable guy and was trying to do a good thing on behalf of his beloved, deceased mother. Just how did the hospital decide to go to trial on this one?

I don't know. I wasn't there, I don't know those involved and it may be that there's more to this story. If so, I hope someone will comment to fill us in.

It appears, though, that the hospital suffered from what Randall Kiser calls "decision error." Speaking at a meeting of the New Jersey State Bar Association's Dispute Resolution Section this week, Kiser delivered a tour de force review of his empirical research and recommendations for effective pretrial decision-making by lawyers and their clients. As described in his book, Beyond Right and Wrong, The Power of Effective Decision Making for Attorneys and Clients, "decision error" occurs when the result a party achieves after trial is inferior to the other party's last offer of settlement before trial.

Using this definition, it appears likely that the hospital's election to go to trial in the Garth Brooks case was a decision error. The more interesting question is how this decision was made. Randall Kiser offers a multitude of potential explanations, but without being on the inside, one can only speculate. My take away from the Garth Brooks case and Randall Kiser's work is that mediation offers the perfect mechanism to reduce decision error. If all of the factual assumptions, legal theories and cost benefit analyses of both parties are subjected to the crucible of a thorough mediation process, the chances of a decision error will be greatly reduced.

Randall Kiser's research shows that in only 15% of cases, the result after trial falls somewhere between the last best settlement offers of both parties. This means that one of the parties is wrong (i.e., makes a decision error) in 85% of all cases that go to trial. Among other things, mediation should get both parties to more accurately measure the true value of their side of the case, and thereby reduce the potential for decision error. Future posts will examine some elements of bad decisions the mediator can help to fix.

[Image: Garth Brooks, Marshall of OSU Homecoming Parade, October 17, 2009, by Fletcherspears]

Reshaping Doctors' Compensation - Be Careful What You Wish For

Richard J. Webb — Thu, 19 Jan 2012 11:24:00 -0500

Healthcare reform measures and the prevailing wisdom of industry visionaries tell us that the way we pay our doctors must change. In a nutshell, we're told that doctors paid on a "piecemeal" basis: have an incentive to order and do more work (at greater cost); treat the immediate condition rather than the whole patient; and are disconnected from any responsibility for the real, total cost of their patients' care. Thus, the push towards "accountable care" calls for remaking doctors' compensation models to discourage piecemeal work, reward patient satisfaction and instill awareness of total system costs. Government agencies, health insurers and hospitals that regularly deal with doctors' compensation are anxious to put this theory into practice.

But be careful what you wish for.

At least some evidence shows that patient satisfaction doesn't indicate the best medical care. Writing at KevinMD.com, Kevin Pho, M.D. acknowledges that patient satisfaction scores are a good way to identify ways to improve the patient experience, and that "happy patients" are far less likely to file malpractice claims. He also recognizes that patient satisfaction generally translates into higher revenue for hospitals. On the other hand, studies do not indicate a strong correlation between patient satisfaction and quality of care. In fact, the compulsion to make patients happy by "giving them what they want" may run counter to both quality and cost considerations.

Another serious challenge to the prevailing wisdom comes from David Shaywitz, M.D., PhD, writing at The Health Care Blog (1/17/12). He questions whether it is appropriate and in the best interest of patients for doctors to be thinking about society's healthcare costs?

"The cornerstone of medicine, the most fundamental principle, in my mind, is the absolute, rock-solid belief that your doctor is your unqualified advocate and will work as hard as possible to provide you with the best medical treatment possible, as if you were a member of her own family...

Perhaps (and it pains me to say this), physicians have something to learn from our colleagues in the law. It could be that we are better served by an adversarial system of some kind, where at least you can trust your doctor, rather than by a system in which physician’s role is to assess not only your disease but your relative value to society.

We’re not there yet, but when I read about the supposed moral imperative to be responsible stewards of the public healthcare dollar – yes, I worry. And so should you."

I think David Shaywitz is right.

So what does this mean for the prevailing wisdom? It may mean that the prevailing wisdom is as much about how to maximize payment under the coming ("reformed") system as it is about improving patient care. Could we be substituting a new set of flawed incentives for the old flawed incentives? As conflicts arise in the competition over the ever-shrinking pie, the players need to steer clear of false assumptions. The process of sorting out the allocation of limited dollars will be hard enough without paying for dubious improvements.

[Image: Wish, November 22, 2009, by Jessica Tam]