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Business Observer Friday, Aug. 29, 2003 15 years ago

Risk Management

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Physicians turn to binding arbitration agreements to help stave off the high cost of malpractice insurance premiums and the threat of frivolous litigation.

By Kendall Jones

Senior Editor

Arbitration agreements have been a standard part of construction industry contracts for years. Company executives regularly sign them as part of employment agreements. There are boilerplate clauses in most corporate deals.

Arbitration agreements, contracts under which the parties agree to resolve a dispute before arbitrators rather than in the courtroom, have become a common tool in business. Arbitration is usually faster and more cost-effective than litigation, and since the parties can select the arbitrators - usually one to three certified individuals experienced in the particular field at issue - the parties have a measure of control over a predictable, reasonable outcome.

Traditionally, physicians have not asked patients to sign arbitration agreements, but for many physicians, that is changing.

It's no secret that the Florida Medical Association, the state lobbying group for physicians, and FPIC, First Professionals Insurance Co., the largest malpractice insurer in the state, are unhappy with the recent malpractice legislation. The FMA and FPIC wanted lower, more strict caps on non-economic damages in malpractice lawsuits. They contend the new laws will not enable insurers to lower malpractice insurance premiums in a world where frivolous litigation is on the rise, accompanied by skyrocketing legal expenses and outrageous damage awards.

In response to the legislation and rising costs associated with malpractice litigation, the FMA and FPIC have each separately created arbitration programs for physicians. Both groups have drafted arbitration agreement templates, which physicians can use by simply filling in the blanks with information pertaining to them, their practice and their patients.

The agreement, which a patient must sign in non-emergency circumstances and only after being fully informed, requires a patient to take a malpractice claim to binding arbitration, not court, with no opportunity for appeal. The arbitration decision is final.

The groups also created short videos for physicians to show patients before asking them to sign the agreements. FPIC, which provides a video and the contract template free to its policyholders who participate in the arbitration program, says its six-minute video "relieves physicians and their staff from the burden of having to explain the arbitration agreement and it ensures that the message is clear, consistent and reproducible in the event of litigation."

Once a patient certifies he has watched and understands the video, he can sign the arbitration agreement. Typically, the agreements state that in event of a claim, both the patient and the doctor select one arbitrator each, giving the patient some control over the decision-makers, then those two arbitrators jointly select a third arbitrator. Most arbitration agreements will also contain a provision enabling the patient to cancel the arbitration agreement within 30 days, but that provision and the length of that window are optional for physicians.

For patients who refuse to sign or who cancel, physicians can discontinue care for that patient, so long as that would not constitute abandonment of a patient at a critical time in their care. Some doctors may offer to provide a bridge of care while the patient transitions to another physician.

Although such agreements have been enforced in California and a few other states, they are untested in Florida and other states where the agreements are an emerging trend in the malpractice crisis. Patient and consumer advocate groups are on the offense against arbitration agreements, claiming they unconstitutionally deny a patient access to the courts and a trial by jury - key arguments in Florida, where those rights are explicitly provided for in the state constitution.

The law in Florida, like most states, acknowledges a person's prerogative to contract away most of his constitutional rights, including right to a jury trial, but only in circumstances where the individual clearly knew and understood what he was doing and did not feel forced to sign the contract.

Advocate groups particularly seize on that last element, claiming patients feel coerced to sign the agreements in order to get health care, and therefore the agreements violate the constitution.

A recent press release by the Center for Justice & Democracy, a national consumer rights organization, attacked the trend, stating: "Recent reports indicate that Nevada doctors are starting to compel patients into signing mandatory binding arbitration agreements as a prerequisite for patients to receive medical treatment. These agreements force patients to sign away their legal rights to hold negligent doctors accountable in court in the event the patient is killed or injured due to malpractice . Under mandatory binding arbitration, access to the courthouse door is blocked."

"I have numerous clients who are considering use of arbitration agreements," says physician advocate Jonathan Fleece, a certified health care attorney with the Bradenton law firm of Blalock, Walters, Landers & Vogler. "I believe a material number of doctors will begin to try arbitration agreements because the FMA and FPIC support and endorse them. But doctors will have to be able to defend against claims that they are unconscionable - that they coerced a patient to waive his constitutional rights. Florida is a tougher state to withstand that scrutiny than others because the state constitution gives a clear automatic right to access to courts and trial by jury. The first case challenging these agreements will go all the way to the state supreme court. With the plaintiff's bar very much opposed to arbitration agreements, there is a heated political and judicial debate to come."

Fleece says the best way for physicians to defend against claims that patients were forced to sign the contract is to demonstrate the patient made a fully informed decision and had a real choice as to whether to sign the agreement. To maximize enforcement of the agreements, Fleece recommends physicians use the videos, include a clause that allows a patient to cancel within a certain time and provide some continued care, such as care during transition to another physician or even longer-term care, for patients who refuse to sign the agreements. It's also important to recognize that some doctors, such as those who perform non-elective surgery, will likely not be able to use the agreements.

"Arbitration agreements are much more applicable to certain segments of healthcare," says Fleece. "Obviously, they are not appropriate in an emergency setting."

There are risks to a physician implementing arbitration agreements. The doctor could lose patients angered or insulted by the agreement. It may affect a doctor's referral relationships; if a doctor who refers patients to a physician disagrees with the new use of arbitration agreements, he may stop referrals. Because the agreements are untested and ultimately may not stand up in court, the entire effort may be for naught. Moreover, use of the agreements, at this time, does nothing to reduce or affect malpractice premiums.

"FPIC has stated to me that it will support its policyholders in actions to seek to enforce the arbitration agreements," says Fleece, whose clients include many FPIC policyholders. "If the Supreme Court of Florida holds them enforceable, we may then see a reduction in premiums for physicians who use the agreements. For doctors, it is now just a risk management tool. It's another tool to prevent plaintiff attorneys from bringing frivolous lawsuits."

Bradenton family practitioner Richard Proctor is one of several Gulf Coast physicians who now use arbitration agreements. After attending an FMA session on arbitration agreements, Proctor began using the video and contract template. Proctor still carries malpractice insurance, but after his rates increased more than 825% over the last two years, even though he has never had a claim, he is considering going "bare," without any malpractice insurance.

"First, I am trying to avoid the court system," says Proctor. "If there is a wrong, I want to right it between me and the party affected. I don't need the middleman, I don't want to feed attorneys. I used to be able to spread my malpractice premiums out over four to six months, but now I have to pay it all in one lump sum - it really affected me when I had to pay that a couple of weeks ago, and now I am looking at the full ramifications of going bare."

Despite the risks, Proctor points out one of the biggest benefits for physicians: "Let's assume the agreement is not worth the paper it's written on in Florida, even though it's been held up in three or four other states. It has still helped me flush out the bad apples, and that makes it worth its weight in gold. I can discover patients with ulterior motives, those who see suing a doctor as a Lotto ticket - patients who don't mention certain things in their history or those intent on harming themselves, hoping to prove harm by a doctor. This isn't the lottery. We're not here with big targets on our backs. It's all about risk reduction."

Proctor says he has lost about eight to 12 established patients, and about the same number of new patients, either because they refused to sign the agreement, or they signed it but then made a snide or sarcastic remark about its enforceability. In the latter case, Proctor says a patient's attitude and conduct about the agreement, even if he signs it, may still result in him being "shown the door."

Proctor says the patients he has lost through this process are exactly the kinds of patients he does not want anyway; most of his patients are happy to sign the agreement. To round out his protection, Proctor has also stopped his emergency room coverage, except for his existing patients who had already signed the arbitration agreement before there was an emergency.

"Initially, the attitude of other doctors in town was condescending, but now, some of the biggest physician groups in town are using arbitration agreements or seriously considering them," says Proctor. "I don't subscribe to the theory that caps are the Holy Grail for reducing premiums. I don't look to the Legislature for the answer. The high rates are symptomatic of a deeper problem of old-fashioned greed, the desire to obtain something you didn't earn at the expense of someone else. If you did your best, but someone got hurt, if there are no economic damages, does money really reverse anything? Will money really deter bad actions of a doctor who did his best and did not harm anyone on purpose to begin with?"

But the fact that so many other physicians are considering use of arbitration agreements as a risk management tool raises another concern. If every internist in Bradenton, for example, began requiring signed arbitration agreements for treatment, patients could argue that they no longer had a choice, that they had to sign an agreement in order to receive care from a local internist, thus supporting a possible argument that the contracts are unconscionable. Fleece agrees that this may become a valid concern.

As for Proctor, he says in those circumstances, for a patient without an emergency who won't agree to an arbitration agreement: "Maybe they'll just have to drive to Gainesville to find a doctor."

case study: Duke University

Duke University began offering voluntary binding arbitration to its patients in 1994. Under the program, a patient can elect arbitration as the vehicle to resolve professional liability (malpractice) claims, general liability claims such as slip and fall and billing disputes. Election or refusal of binding arbitration doesn't affect the patient's care. About half of Duke's patients sign the binding arbitration agreement.

The system resulted in an estimated annual reduction of $1 million to $1.5 million in Duke's legal fees. David Adcock, Duke University legal counsel, says the system "injected an element of predictability into professional liability claims," where there was once a chance of runaway juries rendering unpredictable verdicts.

The system also increased the speed for handling claims. With arbitration, a dispute is presented for resolution 260 to 270 days after the claim is made, versus three and a half to four years for litigation. Most plaintiff attorneys like the system because they can explain a predictable process to their clients. Plus, they are paid much sooner than through traditional litigation.

Source: Financial Management Strategies for Medical Offices, October 2002.

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