ADR’s Time Has Come For Resolving Healthcare Disputes

By
Robert V. Deiana, Esq.  

There may be no area for which the use of Alternative Dispute Resolution (ADR) is more appropriate than healthcare.

Unlike our traditional legal system, ADR is designed to provide rapid decisions, which can mean the difference between life and death in some healthcare cases.  Rapid resolution of disputes has become more critical as healthcare has shifted from fee-for-service care to managed care.  Fee-for-service disputes typically involve payment for services already provided.  Managed care disputes are more often over whether certain care should actually be provided.

In addition, ADR is well suited for dealing with the complex conflicts that arise between perceived patient needs and the financial considerations of the insurer.  As our healthcare system continues its rapid evolution, questions about what healthcare plans should cover are becoming more difficult to answer, not less.  Is it an effective use of resources, for example, for a managed care plan to pay for a bone marrow transplant for a breast cancer patient, when there is no conclusive proof that this experimental, painful procedure will prolong life?  Should the health plan fund cosmetic surgery if the surgery may prevent potential psychological damage to the patient?  Should a managed care plan pay for a second opinion from a physician who is not part of the plan?  Is a formulary restriction keeping the patient from obtaining a vital prescription, or are substitutes in the formulary just as effective?

Rising drug costs and other factors are putting financial pressure on managed care organizations while physicians and other providers are seeking greater freedom in the medical decision-making process.  At the same time, the debate continues over state and federal patients’ rights legislation.  Proposals such as Massachusetts Senate Bill 1746 would increase government oversight and regulation of the managed care industry, and provide government-managed procedures for hearing disputes.  Managed care organizations argue that government programs would be unwieldy and bureaucratic, and would add significantly to their cost of doing business.

Currently, managed care organizations are required by law to have internal procedures for handling disputes involving both members and healthcare providers.  Internal procedures for hearing complaints and appeals are required by federal laws such as the 1973 HMO Act, while M.G.L. c.176G, §7(6) requires Massachusetts HMOs to have an appeals process, but there are no regulatory requirements dictating how the process should work.  The National Committee on Quality Assurance (NCQA), the accrediting body for managed care organizations, also requires managed care organizations to follow specific guidelines for appeals if they are to be accredited.

Healthcare providers and managed care organizations make thousands of decisions every day.  Only a small percentage of these decisions are ever disputed, and most disputes are resolved using the internal appeals process.  However, an external process is also needed, since the patient or physician who initiates the complaint is unlikely to perceive the managed care organization’s decision making as being objective.  Rather than take such disputes to court, which can be expensive and time-consuming, ADR is being considered as an external dispute settlement vehicle.  The advantages of ADR, especially for resolving managed care disputes, are compelling, and include:

·        Speed and efficiency

·        Neutrality and fairness

·        Low cost

·        Patient privacy

·        Resolution on a case-by-case basis without setting precedents that will affect future cases

·        Flexibility; solutions to a dispute are limited only by the imagination of the parties involved.

·        Customized solutions; unlike the trial system, there are ideally no winners and losers in ADR.  Ideally, the system is designed to solve problems.

The use of ADR could also help restore the image of managed care organizations, which are often perceived by consumers and the media – whether warranted or not – as being more concerned with managing costs than they are with managing healthcare.

In addition, ADR may actually contribute to the quality of care.

“There’s a disconnect in healthcare between quality improvement and litigation,” according to Roderick B. Mathews, who chairs the Health Care and ADR Committee of the ABA-Section of Dispute Resolution.  Sharing a theory developed by Ed Dauer of the University of Colorado Law School, he said, “This win-lose polarization is inconsistent with the feedback and constructive exchange of information that is required for constant improvement in healthcare.  With ADR, unlike with litigation, there is an open exchange of information.  The feedback mechanism is what enhances quality.”

Use of ADR to Date

ADR is already being used for healthcare disputes in a variety of government and private-sector programs, but still on a very limited basis.  Its use is still in its infancy, but is growing steadily.

Only 310 of the more than 140,000 ADR cases heard last year by the American Arbitration Association (AAA) were for healthcare disputes, but the number has grown steadily every year since 1993, when the AAA heard just 21 cases.  Thus far all disputes heard by the AAA have been the result of contracts with insurers and have been solely between providers and health plans.

The use of ADR for healthcare disputes received a boost when the AAA, the American Bar Association (ABA) and the American Medical Association (AMA) jointly developed a Due Process Protocol for Mediation and Arbitration of Health Care Disputes.  The group’s final report was approved and adopted as policy by all three associations in July 1998.  The protocol governs ADR cases handled by the AAA, and provides guidelines to others, such as insurers and government agencies, that wish to design their own ADR programs.  The protocol focuses on the issues of healthcare access and coverage, but excludes other areas where ADR could have a dramatic impact – most notably, medical malpractice.  Malpractice is the most contentious area of dispute between consumers and their healthcare provider, so it is especially important to have a neutral third-party system for handling such cases.

In Massachusetts, the Center for Health Care Negotiation is sponsoring several ADR projects in collaboration with the Massachusetts Medical Society and the Massachusetts Bar Foundation.  The center mediates cases that are referred to it by the Board of Registration in Medicine.

The center also is managing a pilot program known as the Medical Liability Mediation Project, which is restricted to medical liability cases resulting in serious injury, permanent impairment or death.  The project features non-binding mediation and pro bono review of cases by an expert advisory panel.  These projects are still too new to document their level of success, according to Executive Director Joan Roover.

Private insurers are beginning to accept and use ADR more frequently, and that trend is expected to continue.  For example, Aetna now includes ADR as a means of settling disputes in all of its provider contracts.  In the medical malpractice area, professional liability insurers are also becoming more amenable to submitting cases to either a mediator or an arbitrator.

Forms of ADR

The Due Process Protocol developed by the AAA, ABA and AMA recommends the availability of several types of ADR, but most cases begin in mediation and proceed to arbitration if they are still unresolved.  A mediator is an impartial third party who assists disputing parties in negotiating a settlement.  Mediation is not binding, but successfully resolves 85% of disputes, according to Robert Meade, Senior Vice President of the AAA.

Mediation is a relatively amicable way to resolve disputes.  Cases where the two parties are unable to reach an agreement through mediation often proceed to arbitration, where one or more impartial parties review the dispute and issue a binding decision.

Other ADR options include the use of an ombuds, a neutral third party who researches disputes and investigates proposed settlements confidentially, or use of a fact finder, an impartial third person who examines complaints, considers the facts and writes a report, including a nonbonding opinion.

Potential Barriers

While ADR is a logical course of action for most healthcare disputes, several barriers to its widespread use remain.  These barriers have little to do with the best interests of the patient.

Opposition by legislators.  Many legislators, on both the state and federal level, have proposed external procedures that create government bodies for reviewing healthcare disputes.  However, using a government-created body to review healthcare disputes potentially defeats the purpose of ADR.  Anyone who is hearing cases must not only be neutral, but must be perceived by both parties in a dispute as being neutral.  In addition, ADR cases must be heard quickly, otherwise the process is no better than the traditional legal system.  Can a government agency handle cases as quickly and impartially as a private ADR provider?

ERISA Exemption.  The use of ADR by managed care organizations is clouded by legal interpretation of the Employment Retirement Income Security Act of 1974 (ERISA), which restricts remedies in legal cases against managed care organizations to those provided in the health plan contract.  If, for example, a patient sues a doctor for malpractice, it might seem logical to sue the patient’s insurer, which may have played a role in the doctor’s treatment decision.  While there are no limitations on the damages the patient can collect from the doctor, damages collected against the managed care organization are limited to remedies provided in the plan contract.

State laws are beginning to erode this protection, and numerous additional bills have been introduced at the federal level, but for now the ERISA exemption casts a shadow of uncertainty over the scope of ADR’s application to managed care organizations.

Unfortunately for consumers, providers and health plans, the issue of ERISA exemption has been politicized.  Policy approaches to ERISA exemption overwhelmingly emphasize government solutions, rather than an independent, neutral ADR process.  However, developing an ADR process for handling malpractice complaints is one way to ensure a speedier, less adversarial disposition.

Opposition by insurers.  Independent of regulations requiring or encouraging the use of ADR, some health insurers have begun using ADR to settle disputes, but most have been slow to accept its use.  Like some consumers, insurers are skeptical about the objectivity with which their cases will be handled.

Then again, some insurers have adopted ADR without following objective procedures, such as those provided in the Due Process Protocol.  The results have been less than perfect.  Arbitration has been a standard feature in Kaiser Permanente contracts for 20years, but in the 1997 case of Engalla v. Permanente Medical Group, Inc., et al., Kaiser Permanente was sued because selection of an arbitrator took so long, the patient died before his case was heard.  Evidence claimants brought before the California Supreme Court showed that Kaiser rarely appointed an arbitrator within 60 days of the filing of a claim, as required by its own arbitration clause.  The negative publicity generated by this case was a setback for advocates of ADR.

Insurers will begin accepting ADR more readily when they have a deeper understanding of how it works, according to Mathews.  Insurers will accept ADR, he said, when they understand that the process is simple and objective, and that it works.

Shortage of qualified professionals.  Healthcare ADR has a severe shortage of professionals who are qualified to hear healthcare cases.  As a brand-new field, there are very few experienced professionals who are experienced in mediation and arbitration, and are also familiar enough with medical terminology and the medical decision-making process to hear cases.

Trained mediators and arbitrators may include attorneys with experience in healthcare law and malpractice cases, physicians, hospital administrators, and individuals trained in healthcare negotiation and conflict resolution.  The problem is that many qualified individuals are likely to have a conflict because of a connection with the insurer, or a notable bias toward or against health insurers based on past experience.

Best Practices in ADR

None of these barriers is insurmountable, of course.  Assuming that they can be overcome, what should the best practices of a healthcare ADR process look include?

First, the role of government should be limited to establishing guidelines.  The guidelines should be flexible, but should be strictly enforced.  Even in this limited role, it may be difficult to keep government’s role in the process balanced and non-political.

In addition, some limitations are needed on the types of disputes to be considered to prevent any ADR system from becoming backlogged.  An effort must be made to keep the system from becoming overburdened with frivolous claims and personality disputes.  Many disputes are the result of misunderstandings or miscommunications, and should be resolved even before the patient files an internal complaint.  Conversely, some cases, such as those involving the use of experimental drugs, may be so complex that the mediator or arbitrator is not adequately trained to handle them.

As in the Medical Liability Mediation Project mentioned earlier, disputes may be confined to those involving serious diseases, for example, but what constitutes “serious?”  It may be appropriate instead to tie the use of ADR to disputes based on a dollar amount.

Issues relating to the extent of coverage and access to coverage are appropriate for an ADR appeal, but what other types of disputes should be considered?  According to an article in Dispute Resolution Magazine by Roderick B. Mathews, who chairs the Health Care and ADR Committee of the ABA-Section of Dispute Resolution, “Managed health care ADR is particularly appropriate in disputes involving length of stay; medical appropriateness of place or provider; situations requiring early coordination of treatment by various disciplines such as mental health or substance abuse planning and planning for outcomes among medical, social, psychological, legal, and ethical experts; reduction or termination of services; over or underutilization of resources or facilities; inter-family disputes about patient treatment; physician or patient concerns about utilization incentives or disincentives; bioethical conflicts; health care staff disagreements; access to appropriate procedures and equipment; access between providers and outside networks; and, in general, disputes involving non-monetary outcomes.”

In addition, criteria must be developed for the selection of mediators and arbitrators.  The most important criteria are neutrality and fairness.  Mediators and arbitrators should also have a combination of medical training and legal education, and should be experienced negotiators.  Special training programs may need to be established.

The Due Process Protocol or a reasonable substitute should be adopted as a standard to ensure that the process for hearing disputes is consistent.  Overlapping processes for hearing disputes must be eliminated.  For example, the Center for Health Dispute Resolution makes note of a case in which it upheld a Medicare HMO’s denial, only to have the disgruntled consumer appeal to a state jurisdiction and receive a favorable judgment.

The availability of ADR must be announced to all plan members and providers, and they must receive regular communications explaining how the process works and keeping them abreast of any changes.  Communication should take place using a variety of media, including letters, brochures, Web sites, personal communications and videos.

In addition, because healthcare ADR is such a new field, an effort must be made to monitor results and address any problems that are identified.  All sources and causes of disputes should be tracked using a database, and, when the same causes are identified frequently, health plans should make whatever changes are necessary to ultimately reduce the number of disputes.

The process needs to be non-adversarial, impartial, quick and cost effective.  It must consider disputes at an early stage, before they have had time to fester.  If the external dispute process is to handle disputes that cannot be resolved using internal processes, then the internal processes must be especially expedient.

ADR holds much promise for settling healthcare disputes, but the debate over whether and how it should be used may prove to be as contentious as many of the disputes it is designed to resolve.

Robert V. Deiana, Esq. is a partner in the law firm of Mirick O’Connell of Worcester, Mass.  He can be reached at rvdeiana@modl.com.

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