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The use of ADR in health care disputes

Health care disputes are ideal for alternative dispute resolution. Given the health care environment and the tremendous pressures being placed on payors (insurers, administrators of self insured plans, and governments) and providers (physicians, hospitals, and other providers of medical services and products), one can foresee even more health care disputes in the future.

The single most fertile area for health care disputes is the contractual relationship between payors and providers.

What is there about the health care environment that makes it a fertile area for such disputes?

  • The amount of money involved is often enormous.
  • Health care “reform” is creating tremendous uncertainties. While the Accountable Care Act may have reformed health insurance, it did not significantly address the underlying systemic cost and quality problems in health care delivery. To address the underlying systemic issues, there will have to be large scale disruption.
  • Cost pressures are everywhere. Many people cannot afford traditional health insurance anymore. More small businesses are dropping health insurance as a benefit. Health insurance premiums are doubling every seven to nine years. Health insurance premium increases are driven almost exclusively by increases in the cost of care rendered by providers to patients. These increases are driven by three factors: (i) increases in fees paid to providers; (ii) increases in use of services by patients; and (iii) more expensive services. The U.S. spends much more on health care than any other country, and the quality of the care we get is not what it should be. That is a bad combination.
  • Simultaneously, premiums are increasing, often at double digit rates, and coverage is decreasing (larger deductibles, co-pays, etc.). This combination is causing an emotional and political backlash that puts intense pressure on the entire system to cut costs. Moreover, governmental payors (Medicare and Medicaid) are often paying providers below the cost for services, creating shortfalls that must be made up somewhere else.
  • The concept of “accountable care organizations,” or ACOs, will be central to the future of health care. Oversimplified, ACOs are multi-disciplinary provider groups that are held accountable for all of the care of an assigned population. ACOs will at times be paid “bundled” or “capitated” payments for care of a patient or a population of patients. Basically, these are set payments regardless of how few or many services are rendered. The allocation of such payments to the multi-disciplinary groups comprising the ACO will doubtless create fertile ground for disagreement. Also, corporate governance models for ACOs will present challenges for the practitioner. The opportunity for disputes and misunderstandings abounds.

Typically, financial and other provisions in health care contracts are confidential and competitively sensitive. Often times, the parties have other contracts with similar provisions. That creates significant issues when a dispute arises.

For example, the last thing a payor wants is for a hospital to know it is being paid less than another similarly situated hospital.

The last thing a hospital wants is for a payor to know it is paying that hospital more than the payor’s competitors are paying. Confidentiality limits the damage of an adverse decision, and there is no res judicata effect.

Moreover, it is likely that the relationship between the parties is ongoing and contractual, meaning the parties usually have to continue to do business with each other. That is particularly true in Rhode Island. Health care disputes are media fodder and can be very emotional. Keeping such disputes out of the media may help preserve a relationship.

The need for an arbitrator with subject matter expertise is key. Health care is incredibly complex, and the inherent tradeoffs in many health care issues, particularly between payors and providers, require someone who knows the area well.

While appeals from arbitrators’ decisions are rarely successful, from a business perspective, uncertainty is a cancer. Far better to have a quick, expert, fair and certain resolution than the uncertainties and delays of the court system, much less jury trials.

CEOs and general counsel would be far more willing to place their companies’ futures in the hands of an arbitrator if they were assured of expertise, confidentiality and speed. Lingering public-media-ridden disputes that are decided by decision-makers who have little health care experience is not something to be embraced.

Mediation done correctly can be a beautiful thing. One key is having the right person attending the mediation as the client decision-maker, because it is a reality check for that person to hear opposing counsel sum up his party’s position. Suddenly confidence wanes and settlement becomes more acceptable.

With an effective mediator, it is difficult to avoid being swept up in the attempt to resolve the dispute. A mediator who knows the substantive area (e.g., health care) can suggest resolutions that the parties might not have considered and be sensitive to the nuances.

And, given that in health care the relationships are usually ongoing and contractual, there is much more opportunity for just that.

Many times the contract at issue has an ADR clause that provides first for mediation, and then if mediation is unsuccessful, binding arbitration. Drafting health care contracts absolutely requires consideration of such a clause, and if one is used, the rules and processes to be used should be clarified.

Thoughtful drafting of such a clause can do much to increase the speed of resolution and reduce costs.

– By James E. Purcell. Purcell formerly served as president and CEO of Blue Cross & Blue Shield of Rhode Island. Since 2011, he has been senior counsel at Partridge, Snow & Hahn in Providence, focusing on mediation and arbitration.


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