Stronger Hand for Patients in HMO Arbitration Cases

Arbitration--the private-sector alternative to lawsuits--has long been welcome in California, both by public courts with burdensome caseloads and by plaintiffs and defendants eager to avoid the high costs of litigation. But on Monday, the state Supreme Court properly ruled that the arbitration system had been abused by the nation’s largest HMO, Kaiser Permanente.

The HMO, the court ruled, manipulated the arbitration process to “best serve its interests,” making promises of speedy arbitration hearings in its brochures despite “knowledge of their likely falsity” and concealing “an unofficial policy or practice of delay.” The case involved a patient who died of lung cancer while waiting for the appointment of an arbitrator; his death reduced the amount for which Kaiser could be liable in the malpractice case.

The court’s decision stepped over a rarely traversed line, for central to the idea of arbitration is the premise, agreed upon beforehand by both plaintiff and defendant, that an arbitrated decision is final and thus immune from second-guessing by the courts.

The high court, however, was careful not to question the arbitration panel’s decision. Rather, it raised concerns about the essential fairness of Kaiser’s arbitration process.

The court’s concerns are legitimate. Kaiser has long promised its patients that, in return for sacrificing their legal rights to trial in any dispute with the health care provider, they will receive a rapid resolution. On average, however, it takes an unconscionable 2 1/2 years for malpractice claims to reach a hearing under Kaiser’s program.

A second problem, pronounced at Kaiser and common to most health maintenance organizations, is that the “neutral” arbitrator who mediates between plaintiffs and defendants is often far from disinterested. Among arbitrators, who are approved by both sides, some are reluctant to make aggressive rulings against their one steady client, the HMO.

One way of resolving this conflict would be the presence of a truly neutral third party who in turn would choose the neutral arbitrator. HMOs could, for example, follow the imperfect but nevertheless superior model of the U.S. financial world, in which a third party, the federal Securities and Exchange Commission, oversees arbitrations.

Because arbitration can’t be appealed, it is important that it be perceived as fair. As Jay Folberg, the dean of the University of San Francisco Law School, put it, “Arbitration can only fulfill its purpose if there are certain levels of integrity as well as protection from self-serving administrators.”