Kaiser Agrees to Alter Process of Arbitration

Kaiser Permanente, stung by criticism that its arbitration system for resolving legal disputes is unfair to its members, said Monday that it will adopt an advisory panel’s recommendations that it overhaul the system.

The decision means that the state’s largest HMO will abandon the unique, self-administered arbitration process that it has used for more than two decades for resolving medical malpractice claims and benefits disputes.

Kaiser’s decision comes six months after the California Supreme Court, in a harsh rebuke, ruled that Kaiser manipulated a supposedly neutral arbitration system for its own benefit, while falsely portraying the process as both fair and efficient.

Plaintiffs’ lawyers have complained for years about “Kaiser justice”--their term for a private judicial process that they claim Kaiser unfairly administered to limit its liability in malpractice cases. Unlike other HMOs, nearly all of which refer disputes to an independent arbitration company, Kaiser oversees the process itself.

Under binding arbitration, disputes are taken to a panel of arbitrators, often retired judges, for a decision. All parties agree to abide by the decision instead of going to court.

Awards in arbitration cases are often significantly less than if the same cases were heard by juries, which some say are more likely to be swayed by emotional testimony. Kaiser requires its members to use arbitration in California, Colorado and Hawaii.

In Texas, where state law doesn’t permit arbitration, a jury recently awarded $5.35 million to the family of a man who alleged that Kaiser’s negligence was responsible for his death.

Although Kaiser’s 5.4 million California members still will be required to resolve any claims via private arbitration rather than through jury trials, Kaiser said it will adopt an independently run system that will be “fair, impartial for all involved and . . . timely,” Kaiser Chairman David Lawrence said at a press conference.

Some consumer groups praised Kaiser’s move as a step forward, but another said the advisory panel’s recommendations--and Kaiser’s steps--didn’t go far enough.

“This doesn’t get to the major abuses of the system or create a more public system where plaintiffs can see a jury decision and have access to [court] documents” said Jamie Court, director of Consumers for Quality Care, a Santa Monica advocacy organization that works closely with trial lawyer groups.

“A fairer way would be to let consumers have a choice whether to waive arbitration” and opt for a jury trial, Court said.

Although Kaiser’s arbitration system has faced criticism for years, the HMO had staunchly defended the process until last year’s embarrassing Supreme Court decision. Kaiser’s Lawrence formed an advisory panel to recommend ways to improve the system.

The panel included Phillip Isenberg, a former California assemblyman; retired U.S. District Judge Eugene F. Lynch; and Dr. Sandra R. Hernandez, a former public health director for the city of San Francisco.

Lawrence said Kaiser will enact “virtually all” of the panel’s recommendations. Kaiser agreed:

* To appoint an independent administrator to manage its arbitration system to eliminate the perception that its current self-administered process is biased in Kaiser’s own favor. The panel recommended this approach rather than retaining a private arbitration company that might become captive to such a large client.

* To form a volunteer advisory committee with representatives from Kaiser, employers, consumer groups and plaintiffs’ lawyers to help set up Kaiser’s program.

* To set goals for significantly speeding up the arbitration process. The panel suggested, as one approach, resolving 85% of arbitration cases within 18 months and another 10% within two years. A Kaiser official said arbitration cases now take “from two to three years” on average.

* To expedite the arbitration process for patients with terminal illnesses or other “catastrophic circumstances.”

Additionally, Lawrence said that Kaiser is reviewing the panel’s finding that Kaiser’s internal process for handling patient complaints is “extremely difficult to understand.” The panel said the HMO should set up an “ombudsperson” to assist members with problems, but Kaiser said it isn’t ready to enact that recommendation at this time.

The state Supreme Court ruling stemmed from a malpractice case brought by the family of Wilfredo Engalla, which claimed that Kaiser misdiagnosed his illness and then, to limit its potential damages, intentionally delayed arbitrating the case until after Engalla died from cancer in 1991. The justices sent the case back to a lower court to decide whether Kaiser’s actions constituted fraud.

Kaiser has denied any wrongdoing in the still-unsettled Engalla case. A hearing is scheduled in Alameda County Superior Court on Feb. 10.