ABSTRACT: Arbitration is a form of dispute resolution that is an alternative to “taking a case to court.” Weighing the potential advantages and disadvantages, predispute arbitration may represent a valid alternative dispute resolution strategy for physicians and patients. When correctly prepared, contractual agreements between patients and physicians for predispute, voluntary, binding arbitration can satisfy both individual and societal needs and, at the same time, meet relevant ethical principles.
Significant political roadblocks continue to affect federal tort reform legislation. State tort reform has been passed and upheld in several states, but has been nullified in others by state Supreme Court decisions. Apart from classic, MICRA-style tort reform legislation*, proponents of medical liability reform have long advanced models of alternative dispute resolution. Common examples of such alternatives include early offers of compensation, mediation, and arbitration. These alternatives can be implemented by health care institutions and liability insurers without necessarily requiring statutory implementation. One utility of arbitration is that the parties may agree in advance to arbitrate before a dispute arises. These types of predispute arbitration agreements, although common in commercial settings, have been less frequently used in health care. This Committee Opinion addresses the mechanism of predispute, voluntary, binding arbitration agreements between health care providers and patients, referred to hereafter simply as “predispute arbitration agreements.”
The Federal Arbitration Act, signed by President Coolidge in 1925, was advanced by business and commercial interests who sought alternative means of resolving claims because of the costs and delay of traditional litigation. Congress declared a “national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration” (1)†. Today, in the context of health care, arbitration is used by health maintenance organizations, medical liability insurance companies, risk retention groups, academic institutions, skilled nursing facilities, and hospitals (2).
*In 1975, the California Legislature passed a comprehensive tort reform bill, the Medical Injury Compensation Reform Act, also known as MICRA. The provisions of MICRA, most notably a cap of $250,000 on noneconomic damages, have resulted in lower liability claim payments, lower premiums for physicians, better access to health care, and speedier victim compensation. For these reasons, MICRA is often cited as the standard for federal and state medical liability reform.
†Although there is federal arbitration case law under the Federal Arbitration Act, state law provisions regarding state arbitration acts also must be considered. State legislatures and state courts have slightly differing standards for application and validity of arbitration agreements. One issue specific to obstetrics is whether parents can bind an as-yet-unborn child to an arbitration agreement. Legal consultation regarding state versus federal law is prudent.
Basic Principles of Arbitration
Arbitration is a form of dispute resolution that is an alternative to taking a case to court. The parties agree to refer their dispute to an arbitrator or a tribunal of arbitrators and usually agree to be bound to the decision reached (“binding arbitration”) with no right of appeal. By contrast, mediation involves a neutral facilitator who assists the parties in reaching a compromise. Mediation can be required by a court, but is nonbinding in that neither party can be forced to accept the mediator’s recommendations.
Advantages and disadvantages to arbitration exist. Arbitration is generally faster and less expensive than a traditional court case because the parties agree to relax the rules of evidence and procedure, which allows for a streamlined process. In complex and highly technical cases, an arbitrator with special subject matter expertise can be appointed, which saves time and expense. Arbitrators usually are paid by the parties. This is deemed preferable because an arbitrator’s regular reliance on insurance companies for repeat business might create the appearance or existence or both of bias in favor of a party. Limitations on the right of appeal may significantly decrease the cost and uncertainty otherwise associated with litigation. It should be noted that the parties to the arbitration waive their right to a jury trial. This could be a disadvantage to a plaintiff with a difficult case in which to prove negligence, but which possesses great emotional appeal to a jury. Similarly, there may be limited or completely absent discovery in an arbitration, which might disadvantage one or the other party. Arbitration awards or judgments are not themselves directly enforceable, although arbitration agreements usually include provisions for enforcement, which are operative in most cases. If the “losing” party refuses to pay, a “winning” party could be forced to pursue an action in the courts to gain relief. That might negate or diminish the benefit of a speedier, less costly procedure.
Weighing the potential advantages and disadvantages, predispute arbitration may represent a valid alternative dispute resolution strategy for physicians and patients. In practice, an agreement to enter into arbitration would be made at first contact, when the physician and patient establish a relationship. Because this agreement is made predispute, before any alleged injury has occurred, it is important that the physician ensure certain essential information is shared and that the agreement is made voluntarily. Courts have struck down arbitration agreements because the claimant argued successfully that her consent had not been voluntary or that full disclosure had not been made (3). A physician who wishes to adopt a predispute arbitration agreement with patients should consult an attorney to ensure that the correct contractual language is used and the process of consent is appropriate. What follows is a discussion of the principles upon which this language and process are based.
The Concept of Voluntariness
Voluntariness lies at the heart of implementing a predispute arbitration agreement. The patient must not be made to feel any subtle pressure to sign documents proffered by the physician or office staff. She should be able to clearly read and comprehend all aspects of any agreement with which she is presented. She must be given ample time to review the document in its entirety and, if so inclined, consult legal counsel. Should the patient decline to sign the agreement, she must not and cannot be refused care as a consequence (4). This fact should be clearly stated to the patient on initial presentation of the agreement. The use of bold or large typeface and color can help draw the patient’s attention to important aspects of the agreement, including the voluntary nature of the contract and the relinquishment of the right to sue or have her case tried by a civil jury (2, 5). An interval during which the patient may withdraw from the agreement is commonly required as well. In law, this interval is called the rescission interval, in that the party may withdraw or rescind her prior agreement. Seven to 10 days often is considered a reasonable period, but state requirements vary and adherence to a longer period than mandated is prudent. Patient consultation with an attorney is encouraged to ensure the voluntary nature of the agreement as established by a state’s common law and statutes. See, for example, Moore v Woman to Woman Obstetrics & Gynecology, L.L.C., 2013 N.J. Super. Unpub. LEXIS 2035 (App.Div. Aug. 14, 2013). Although not an exhaustive list, the physician must address the following essential points when an agreement is obtained for binding arbitration:
- The patient cannot be denied care for refusing to enter into an arbitration agreement.
- The patient and physician will waive any right to appeal.
- The patient and physician will waive the right to have a jury or judge hear the case.
- The patient and physician will waive the right to receive attorney fees from the opposing party.
- The rules of evidence and procedure may be modified. The patient and physician may waive or limit their respective rights to discovery.
- The enforcement of a judgment might, on occasion, require resort to court action.
- The required scope of a valid binding arbitration agreement, inclusive of all claims versus limited only to medical negligence claims, varies according to state law.
Role of Insurance Carrier
The physician must involve his or her professional liability insurance carrier and private attorney(s) in the process of creating an arbitration agreement. The physician’s insurance company is intimately involved with the ultimate recompense of a case, whether by trial, settlement, or arbitration, and must agree to pay any judgment that arises out of arbitration. It is essential that the physician obtain written confirmation from the carrier to this effect. Without written proof, the carrier could deny coverage of a claim, which leaves the physician to bear full responsibility for any arbitration award. In addition, liability insurance companies may have resources to provide patient information and forms of agreement (tested against the requirements of state law), which saves time and effort in the creation of legal arbitration contracts.
The Arbitration Process
In the case of arbitration, the involved parties present their case before one or more knowledgeable professionals as opposed to an active sitting judge and jury. Arbitration can involve a decision entirely in favor of either side. When a defense verdict is rendered, there is usually no remuneration of any type to the plaintiff*.
One typical model for arbitration involves the selection of three arbitrators who are usually attorneys with experience in medical liability litigation. Initially, each side involved in the arbitration will select a single arbitrator from a list of qualified arbitrators. These two selected arbitrators will then select a third arbitrator, and all three will hear the facts presented by both sides (and their attorneys). Another model involves a single arbitrator, sometimes a retired judge. The verdict of the arbitrator(s) will determine whether or not there was a finding of medical negligence. If so, an award of monetary damages also will be made. If necessary, this award can be entered as a judgment against the responsible party. However, if it becomes necessary to enforce a judgment in order to collect the arbitration award, this could involve additional expense. Generally, unless both parties agree to allow an appeal, the courts are not able to review the findings of an arbitration decision absent of some allegation of corruption or fraud. Judicial intervention is uncommon and usually not necessary (4). That stated, an effective and enforceable arbitration agreement should contain a “choice of law” clause, specifying which state’s law is to apply. This choice of law provision is important to cement the laws under which any dispute would be resolved.
*One type of arbitration, termed “high-low arbitration,” has grown in popularity. In a high-low arbitration agreement, the parties agree before the hearing to a range within which the award, if any, will be made. The arbitrator is usually not informed of this agreement. An award in favor of the plaintiff would be capped at the higher amount. In the event of a defense verdict, the remuneration to the patient would be at the “low” amount. It is important to note that if there is a payment of the “low” amount, based on a finding in favor of the defendant, no report is made to the National Practitioner Data Bank.
The Patient’s Interest
The physician may emphasize the positive elements of arbitration while obtaining the patient’s agreement. The following are examples:
- Arbitration is usually less costly than a traditional trial because the process is quicker and generally less complicated.
- Arbitration usually results in less uncertainty for both parties and more rapid compensation for the injured party.
- The speed of the arbitration process can lessen the emotional toll of an otherwise drawn out court case.
- Arbitration is often less adversarial than litigation. Parties usually are encouraged to participate fully and sometimes even structure the resolution.
- The arbitrator is usually a subject matter expert, thus the intricacies of the matter may be better understood.
- Arbitration hearings usually are held in private, and the proceedings and final resolution can be kept confidential. Sensitive or personal information is safeguarded from public exposure.
The Physician’s Interest
Typically, the emotional toll of a court proceeding on a physician’s psychologic well-being can far surpass the economic ramifications of the liability lawsuit (6). In these situations, an expeditious resolution to the event, even if decided against the physician, can lessen the negative effect on the physician’s psyche. It can allow the physician to provide care for other patients who may be dependent on his or her time and professional expertise. The predictable and firm timeline of arbitration will more likely allow the physician to attend the entire proceeding without interfering with other community obligations or sacrificing the needs of his or her other patients. Another advantage of arbitration to the physician is that it presents an opportunity for a fair hearing by individuals with an understanding of health care issues who might more likely assign a fair monetary award to justly compensate a patient for real damages incurred. Physicians, when faced with a situation that involves substandard or negligent practice, support an appropriate award to a patient injured as a result of care provided.
Widespread adoption of predispute arbitration by patients also creates a potential for lower indemnities, lower liability insurance costs, less time out of the office, and less loss of earnings than would be anticipated in a jury trial. Nonetheless, it is impossible to know in advance that any financial benefit will in fact be realized. For example, because arbitration offers the opportunity to make legitimate claims for smaller injuries than would otherwise be accepted for litigation by a plaintiff’s attorney, claims frequency could increase (4).
Studies suggest that total indemnities paid in arbitration are somewhat less than those in jury verdicts, but a much higher percentage of the award goes to the plaintiff. Savings in court costs, attorney fees, and administrative costs are universally acknowledged (7).
An additional benefit of predispute arbitration to all members of society is the potential for earlier discovery and disclosure of medical error. This enables more rapid performance of root cause analysis and implementation of corrective measures to prevent further patient injury. Also, more rapid identification of physicians who consistently perform at a level below the standard of care can occur, which allows for removal or rehabilitation or both of such individuals as appropriate.
Although there continues to be variation among states in the acceptance of binding arbitration in disputes that arise out of medical care, the Federal Arbitration Act will, over time, likely require acceptance of such agreements to the same extent as any other contract in all or most states. In those jurisdictions that already uphold binding arbitration, certain common characteristics are found:
- Arbitration agreements are set apart from other contractual provisions, preferably in a format approved by the state’s Attorney General or highest court. Details, such as type size and color of print, are sometimes specified.
- A clear and unambiguous declaration states that the agreement is a binding legal document that will foreclose the right to civil jury trial.
- In the event of uncertainty, the patient is advised to consult legal counsel.
- A period in which the patient may revoke her consent (rescission) is stipulated.
- Medical or surgical treatment is not conditioned upon the acceptance of binding arbitration (voluntariness).
From a policy perspective, where state-enabling legislation is enacted, it should balance the right of an injured claimant to a fair hearing with the physician’s need for prompt adjudication by impartial decision makers. Neither patients nor physicians should be subject to unfair procedural rules, excessive fees, or a limited selection of arbitrators. When implemented in a manner that takes into account the considerations discussed in this document, contractual agreements between patients and physicians for predispute, voluntary, binding arbitration can satisfy individual and societal needs and, at the same time, meet relevant ethical principles.
- Southland Corp. v. Keating, 465 US 1(1984). ⇦
- Common Good. Creating health courts through consent: opportunities and challenges for a non-legislative approach to administrative injury compensation. Washington, DC: Common Good; 2008. Available at: http://www.rwjf.org/content/dam/web-assets/2008/07/creating-health-courts-through-consent- . Retrieved July 10, 2013. ⇦
- Bybee v. Abdulla, 2008 UT 35, 189 P.3d 40. ⇦
- Metzloff TB. The unrealized potential of malpractice arbitration. Wake Forest Law Rev 1992;31:203–30. ⇦
- CA Code of Civil Procedure, Section 1295 (1999) Retrieved July 10, 2013. http://www.leginfo.ca.gov/cgi-bin/displaycode?section=ccp&group=01001-02000&file=1295. ⇦
- Charles SC, Frisch PR. Adverse events, stress, and litigation: a physician’s guide. New York (NY): Oxford University Press; 2005. ⇦
- Zuetel KR Jr. The substantial benefits of using binding arbitration for California’s healthcare providers. Reno (NV): Premier Physicians Insurance Company; 2007. Available at: http://www.ppicdocs.com/library/Substantial_Benefits.pdf. Retrieved July 10, 2013. ⇦