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Medical Malpractice Disputes in the Age of Managed Care

I. Introduction

It cannot be disputed that as the millennium approaches healthcare costs are skyrocketing. In 1965 the nation spent 6 percent of the GNP on healthcare, today the industry consumes 14 percent of the GNP and this number is expected to increase in the years to come. The phenomenal growth of HMOs in recent years bespeaks their success in effectively using economies of scale and Amanaged care@ to cut costs, a necessary objective in the modern healthcare landscape.

In managed care systems, providers make medical decisions with an eye towards cost-containment in an attempt to prevent the Aover-utilization of resources.@ However necessary, this approach to cost-cutting may be completely contrary to the patients= best medical interests. Whether or not this approach does, in fact, lead to increasing malpractice through omissions, it is certain that it has, and will continue to, lead to increased malpractice claims.

HMOs have sought to deal with the excessive costs of increasingly frequent litigation by requiring prospective patients to submit to mandatory binding arbitration clauses in their provider contracts, a solution which can, in many ways, be beneficial to consumer and provider alike. However, there are also a variety of problems which can arise from the sole use of binding arbitration to resolve malpractice conflicts. For example, injured plaintiffs may feel that they have been denied their Aday in court,@ and important legal precedent may not be developed.

This paper will seek to determine whether binding arbitration is the best possible solution to resolving malpractice disputes, or whether traditional litigation, while costly, is the safest choice. To do this, the paper will examine both the advantages and the disadvantages associated with using arbitration as opposed to litigation and will then argue that a third, often overlooked option, mediation, is a superior alternative which addresses the problems inherent in each.

II. Litigation of Medical Malpractice Claims in a Managed Care System

Litigation is the traditional means of resolving medical malpractice disputes. As such, it is the standard against which all other forms of dispute resolution must be measured. If, in fact, one cannot improve (either in terms of judicial fairness or fiscal economy) upon its tried and accepted methods of resolving disputes then there is no reason to proceed. Therefore, an excellent place to begin is by evaluating the strengths and weaknesses of the traditional forum, litigation.

A. The Strengths of Litigation

One of the strengths commonly associated with litigation as a means to settle medical malpractice disputes (or for that matter, disputes of any kind), is that litigation fulfills an important role in the emotional aspect of dispute resolution. Specifically, litigation satisfies the plaintiff’s need for vindication when they feel that they have been wronged. When one has been injured, it is not uncommon to hear expressions such as AI=m going to slap him with a lawsuit,@ or AI=m going to drag her into court and take her for everything she is worth.@ While it may be more desirable, it would not be natural for a person who has been wronged to respond by saying: AI can=t wait to arbitrate or mediate this dispute.@ Whether or not it is right, litigation certainly fulfills a basic human need to be heard.

Beyond the emotional merits of litigation there are also a variety of very real pragmatic benefits that are derived from litigating a medical malpractice dispute. One benefit of litigation is the development of binding precedent. Under many current insurance contracts, claims can be denied if they are experimental or investigative. However, treatments, which are experimental today, may become the standard, or generally accepted, practice of tomorrow. If all disputes are settled through private venues such as arbitration or mediation, then legal precedent governing what treatments must be covered by insurance contracts will fail to develop. Thus, each time an insured requires a new or costly procedure, they may be forced to arbitrate the matter in a jurisdiction devoid of ruling precedent. On the other hand, when the law is developed with binding precedent from previous decisions, the insurer might simply provide the service rather than spend legal fees to litigate a matter it would certainly lose.

Additionally, the procedural aspects of litigation, while time consuming and expensive, may often protect disempowered litigants. One could easily envision a situation where the limited discovery procedures provided for in most ADR proceedings may not be adequate to uncover certain records or other information which may have been available in a litigation forum.

A final benefit of using litigation to resolve medical malpractice disputes is that the litigation forum, unlike other private means of dispute resolution, is a very public forum. This factor can be a benefit to both prospective plaintiffs and the public at large for two reasons. First, the more publicity the case receives, the more likely it is that the negligent provider will be investigated by the proper authorities. Second, the attention generated by the publicity of large trials will also serve to alert the public at large to the potential danger of a repeat offender.

For the aforementioned reasons, it is clear that, although litigation is generally costly and time-consuming, there are certain factual scenarios in which either the precedential effects, the public nature of the forum, or the procedural methods of conducting discovery are helpful to ensuring that a just result is achieved.

B. The Weaknesses of Litigation

Given the benefits of litigation, the general consensus today, both within the legal community and within the public at large, is that litigation is often not the best forum to resolve civil disputes. Further, as applied to the resolution of medical malpractice disputes in the age of managed care, these faults become glaringly obvious.

For example, there can be little question that in many cases, especially where the damages are low, or are non-monetary (e.g. emotional), litigation of a dispute does not make sense. In fact, where the cost of litigating a claim may well exceed the amount of compensation to be paid to the plaintiff, it is often very difficult for the plaintiff to find an attorney who is willing to represent him. Ironically, whereas the traditional lawsuit and right to jury trial has long been seen as the great equalizer and insurer of redress, modernly the cost of litigating a small claim may keep a person with only moderate damages out of court entirely.

Additionally, the high costs associated with litigation are detrimental to the public at large for another, entirely different reason. A recent Government Accounting Office (GAO) survey found that one of the many reasons that HMOs are able to keep their costs affordable is that they have been largely successful in avoiding litigation altogether. Money saved by health care providers may then be translated into affordable rates for subscribers. For this reason, ADR is no longer merely an option to the traditional forum, it is increasingly becoming an economic necessity required for HMOs and other provider networks to effectively compete in the market.

A similar problem with litigation as a means to resolve malpractice disputes is that it puts severe stresses on the ongoing relationship between providers and patients. With the rise of managed care and HMOs, the importance of preserving doctor patient relationships has become of utmost importance.

Doctors who have been accused of malpractice often perceive a negligence claim as an allegation of near criminal conduct. Likewise, plaintiffs who have been seriously injured are often highly emotional and in need of a process less formal than litigation in which they can Adischarge emotions, ask questions, and sometimes just be able to pose questions for which there may not be an answer.@ In the past, when these concerns have not been addressed in litigation, the doctor and patient simply go their own ways after the process is over. Modernly, however, employees may be locked into their provider as a part of their employment, or, even if an employee can switch providers, the HMO may risk losing a large block of other employees/clients at the same time. For these reasons, providers have no choice but to subscribe to other, less confrontational forms, of resolving disputes.

A final commonly cited problem with the use of litigation as a means of resolving disputes is that it requires lay-people to make factual findings and legal conclusions about highly technical issues. Some commentators have even argued that the very process of voir dire, in which witnesses are queried and then selected based upon their responses, is designed to Aminimize the likelihood of better educated, more technically sophisticated individuals serving on juries.@ When combined with the fact that juries are poorly compensated for lost time at work, many better educated, higher-income persons, may choose to opt-out of jury service whenever possible in order to avoid economic loss. Together, these factors work to ensure that jurors may often be unsuitable candidates to resolve highly technical issues.

This problem is then compounded by so called Adueling experts.@ Legal commentators point out that legal experts, who purportedly are present to enlighten the jury often merely obscure facts because they are either Ahired guns@ using junk science to justify questionable conclusions, or because they are simply unable to adequately communicate to juries complex theories in a limited amount of time. Also, procedural limitations often limit jurors ability to ask questions about unclear testimony, or use tools such as notes to aid in their understanding, thus making the experts= job even more difficult.

For all of these reasons, litigation, while satisfying on some levels, can also be ineffective in many situations.

III. Arbitration of Medical Malpractice Claims in a Managed Care System

In recent years, arbitration has arisen as a proposed solution to many of the problems associated with the litigation of medical malpractice claims. Therefore, we should examine what it is about arbitration that has precipitated this change, and why many HMOs and managed care plans choose to include arbitration clauses in their provider contacts today.

A. The Strengths of Arbitration

One of the primary benefits of arbitration is that it benefits both providers and patients by limiting the resources that are required to resolve disputes, in terms of both time and money. In litigation, where disputes are resolved by laypersons, jurors must first be educated in the basics necessary to understand the medical issues. This alone can take weeks of expensive trial time under the most ideal conditions. However, even this understates the problem. Jurors not only have to listen and learn, they must also weigh the testimony of different experts who may, in some cases, have divergent opinions about even the most basic of matters, complicating things immensely.

Arbitration, on the other hand, bypasses this Alearning curve@ completely. An experienced and knowledgeable arbitrator will not need to be educated about the science, but rather, only about the facts. The savings in terms of time and money are huge. According to General Counsel for one California HMO, Maxicare, it is not uncommon for a Athree day arbitration to replace a three week trial.@

The benefits of this speed and efficiency are twofold. Not only does this savings of time mean that complex cases can be resolved more quickly, it also means that small disputes, which under a litigation regime may never have been heard, may now also be resolved providing a benefit to the public at large. Further, as stated above, a reduction in the cost of litigating disputes should, in theory, lead to reduced costs to insurers and lower rates for the insured.

A secondary benefit of arbitration is that it preserves existing relationships. As noted earlier, a significant drawback to the use of litigation in a managed care environment is that litigation tends to polarize parties and pit them against one another, a crucial concern when an entire block of employees may vote to stay or leave a provider at the same time. To the contrary, arbitration is a much less Atraumatic@ forum for both the provider doctors and the consumer. Ideally, this setting will let the two parties work together and focus on outcome based solution, rather than to engage in positional bickering.

The collaborative forum provided by arbitration has become important for other reasons as well. In recent years there has been an increase in the sheer number of malpractice claims. This increase in litigation has ironically been a direct result of better medicine. As miracle cures are developed for common illnesses, expectations that doctors can treat even the most difficult medical conditions increase. Therefore, doctors may now seek arbitration not only as a cost-cutting device, but also as an appropriate forum to explain to angry patients why they, or their loved ones could not be cured.

A final benefit of arbitration is that it allows qualified fact finders to make decisions based on information given by less biased or even court-appointed independent experts. This factor is of great significance when, as has been noted, the use of jurors in litigation of technical issues often results in long and costly jury trials.

Additionally, arbitration often leads to more uniform results. As opposed to juries, who make decisions about damages in an Aeconomic vacuum,@ and who are most likely unknowledgeable about economic damages in similar trials, arbitrators= damage assessments are made in the context of other awards. Some may challenge the use of arbitrators because they feel that arbitrators give lower verdicts than do juries and are preferential towards the providers. However, the few studies that have been done which compare jury and non-jury verdicts have come to the conclusion that the average dollar amount of recovery was reported to be slightly higher in non-jury trials. Rather than lower damages, this author would submit that consistency, the ability to plan ahead for adequate insurance planning, and the lower cost of arbitration are what appeal to providers.

B. The Weakness of Arbitration

Despite the fact that arbitration is generally faster, cheaper and more consistent than litigation, there are also some troubling problems associated with it.

One problem with arbitration is that it fails to develop legal precedent in a rapidly changing legal area. This can lead to the squandering of resources through the re-arbitration of previously decided disputes, inconsistent decisions, and other, equally troubling problems.

Additionally, the use of contractually mandated binding arbitration in medical malpractice raises an important legal issue. Recently, many commentators and plaintiffs who have been denied a right to litigate have come forward to publicly question health care providers= use of binding arbitration in provider contracts. Despite the fact that arbitration allows only for abbreviated process and limited discovery, as a general rule courts have enforced arbitration agreement in provider contracts, rejecting arguments by consumers that they are contracts of adhesion. What effect enforcement of these contracts will ultimately have on poor, disadvantaged, or disempowered groups has yet to be fully determined, but some commentators have expressed concern that the informality of alternative dispute resolution processes too risky for these groups.

IV. Mediation as a Means to Resolve Medical Malpractice Disputes in a Managed Care System.

Finally, after illuminating both the advantages and disadvantages of litigation and arbitration, I will now suggest a third option, mediation, and explain the manner in which I believe it combines the most beneficial attributes of both litigation and arbitration, while removing many of the disadvantages of each. To begin, however, we must briefly consider what the term Amediation@ means in the context of ADR.

A. The Definition of Mediation:

The term “mediation” is often misused by persons who are uneducated about dispute resolution processes, and it is this lack of understanding that leads to trepidation or confusion over what it entails. Therefore, I will begin my argument for mediation with a definition, and then elaborate by showing how, out of that definition, mediation becomes excellent starting point in the process of resolving medical malpractice claims in an age of managed care.

Mediation is properly defined as Aa process by which parties resolve their dispute to their mutual satisfaction with the facilitation of a neutral person who has no interest in the outcome and no authority to impose a solution or make a ruling.@ Yet, the term is not always used in this context.

For example, in states such as Michigan and Wisconsin, state tort reform laws have enacted mandatory review of all malpractice claims by a panel of 5 Amediators@ before a case can proceed to trial. Nothing in this process resembles the definition of mediation. It is not intended to facilitate settlement, but rather to weed out frivolous cases before they make it to trial. Therefore, if you were to suggest Amediation@ to a plaintiff=s attorney in one of these states, the response would understandably be negative. Thus, one problem with using mediation is that everyone must understand what is meant by the term in order for it to be effective in bringing parties to the table.

B. The Benefits of Mediation:

Now that a working definition for mediation has been established, we are now ready to turn our attention to a discussion of how mediation can improve upon the two previous models. To do this, this section will list the advantages and disadvantages of both litigation and arbitration together, and then proceed to show how mediation can incorporate the advantages of each while eliminating their disadvantages.

Advantages of Litigation and Arbitration

1.) Fulfills need to be heard (litigation).

2.) Employs procedural safeguards and sets standards for patient care (litigation).

3.)Benefits the public interest by through disclosing information of wrongdoing (litigation).

4.)Inexpensive and economical (arbitration)

5.)Maintains existing relationships (arbitration).

6.)Allows for qualified fact-finders (arbitration).

Disadvantages of Litigation and Arbitration

1.)Expensive and uneconomical (litigation).

2.)Destroys ongoing relationships (litigation).

3.)Requires lay people to resolve technical issues (litigation).

4.)Fails to develop binding precedent (arbitration).

5.)Does not protect the right to process by a court of law/ lack of procedural safeguards (arbitration).

The great benefit of mediation is that it can effectively retain the advantages of both litigation and arbitration listed in the first column above, while doing away with their disadvantages listed in the second column above. How is this done? The key to this is the flexibility found in mediation’s non-binding nature.

Because of its non-binding nature, mediation can effectively combine the best of both litigation and arbitration. It can cut costs while providing improved standards of care. It can resolve disputes without destroying important coalitions.

For instance, assume that there is a person who has been injured by a provider’s refusal to perform an Aexperimental@ procedure, which, in actually, is probably no longer truly experimental. It is possible that that person may be not be compensated by the litigation scheme laid out above if the injury is slight, since few plaintiff=s attorneys would take it on a contingency, or the cost of trial and experts may eclipse any recovery. Therefore, there may be no remedy in litigation.

Now assuming the same facts, except in this case the person goes into binding arbitration. Here, the economics of binding arbitration may allow for a recovery, for even small injuries, but no precedent will be established requiring the provider to perform the procedure on other patients in the future. Thus, future patients would also be forced to go through the arbitration process all over again in order to be compensated.

Under both of these scenarios there are problems with the result that may have been avoided by mediation. To understand how, consider the result of this third alternative, in which the person mediated their dispute. At mediation, because of its non-binding nature, the provider would have the option to either settle, or refuse to settle. If the provider settles, then the problem is solved for that patient at the same (or lesser) cost as would have been incurred by an arbitration of the dispute. If however, and this is where mediation differs from arbitration, the patient decides they want to go to trial to establish binding precedent for other, similarly situated patients, then the patient will have that option. In this way, precedent can be developed which will allow for the prompt resolution of similar claims.

Likewise, providers will benefit from the mediation approach as well. In addition to the preservation of the provider-patient relationship, the mediation process will allow patients, or their families to seek out answers, or at least pose questions, which are often more important to grieving parties than is any monetary recovery. Further, even in cases where a settlement cannot be reached and the party proceeds to a court judgment, the provider will also benefit from the established precedent regardless of the outcome. Where the provider is vindicated in its practices, established precedent will serve to discourage similar claims. Where the provider loses at trial it will be able to improve patient care, and accurately plan for future costs.

This example demonstrates the way mediation can combine the best of both worlds. Claims that can be settled quickly and efficiently are, while claims that require the more formal process of litigation, or a binding precedential decision, can be fully litigated. Claims lacking merit can be evaluated in light of established precedent, thus heading off even the moderate costs associated with mediation, while meritorious claims will serve to improve HMO patient care standards.

V. Conclusion

In conclusion, it has been demonstrated that there are both advantages and disadvantages associated with arbitration and litigation. It has further been demonstrated that mediation is a form of dispute resolution that embraces the advantages of each, while discarding their disadvantages. Specifically, mediation maintains the efficiency of arbitration, while still protecting the procedural rights associated with litigation for patients who, for whatever reason, cannot have their best interests served by the arbitration process.

To be sure, mediation is not a perfect solution to the problems associated with the growing number of medical malpractice claims. However, it effectively bridges the gap that exists today between arbitration and litigation. It allows for providers to maintain a cost effective alternative dispute resolution process, yet it does not infringe upon the patient=s constitutionally guaranteed right to trial, nor deprive disempowered groups the protection of the formal process associated with litigation. For all of these reasons, mediation is a solution which bridges that gap faced by healthcare providers between making a sound business decision, and an ethical one.


David T. Caldon

David Caldron received his Bachelor of Arts degree, cum laude, from Pepperdine University and his law degree from Pepperdine University School of Law. Prior to joining the firm, he completed an internship with the Honorable Consuelo B. Marshall, United States District Court Judge for the Central District of California. Dave… MORE >

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