Negotiating the finer points of mediation, arbitration

A column examining the ins and outs of contract issues

By Steven M. Harrisis a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column. Posted July 2, 2007.

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With the number and cost of lawsuits seemingly skyrocketing, it's not surprising that alternative dispute resolution is at the forefront of physicians' conversations with their attorneys.

Alternative dispute resolution -- such as mediation or arbitration -- can be a better vehicle for resolving health care disputes than going to court.

Arbitration is an adversarial, evidentiary process in which parties submit a dispute for decision by a single arbitrator or a panel of three arbitrators. Typically the parties, upon the beginning of their contractual relationship, agreed in a signed, written arbitration agreement that a future dispute between them will be arbitrated. If the parties are required to submit their dispute to arbitration, the process is referred to in the contract as mandatory. If the parties are required to accept the arbitrator's decision as final, the process is referred to as binding.

Mandatory, binding arbitration agreements are frequently used throughout the medical field. Professional service contracts between hospitals and physicians often contain mandatory, binding arbitration clauses. Many health insurance companies require panel physicians and insured patients to submit payment and coverage disputes to binding arbitration. More and more physicians, hospitals, and HMOs are requiring patients to sign arbitration agreements to submit medical liability claims to binding arbitration.

In contrast, mediation, in essence, is a facilitated negotiation. The mediator is not the decision-maker. The disputing parties keep that role, with the mediator trying to assist in getting both sides to agree to a decision.

In medical liability mediations, the physician might be the ultimate decision-maker depending on the terms of his other insurance coverage, or the insurer may be the final decision-maker. Likewise, patients are the other ultimate decision-makers, although in most situations, patients rely on the recommendations of their counsel. The mediator's job is to keep the parties focused on the issues and to facilitate the discussion. Mediators do not impose a resolution. Unless both sides agree to settle the claim, there is no resolution. However, some contracts state that if mediation does not work, the parties move to arbitration.

Through alternative dispute resolution, parties agree to shift future legal disputes out of the lawsuit system into a more fair, less expensive and more efficient system. Arbitration and mediation do not limit a party's right to seek redress but instead simply shift the resolution of the dispute to a different forum.

Alternative dispute resolution is often preferred to litigation because it:

  • Has simpler procedural and evidence rules, often involves less hostility between the parties, less disruption of ongoing and future dealings among the parties, and more flexible scheduling of times and places for hearings and discovery.
  • Discourages the filing of frivolous claims.
  • Is private, whereas litigation is public and open to the media.
  • Tends to be shorter, from start to finish, than a jury trial of the same dispute.
  • Is less stressful and less formal than a jury trial.
  • Involves arbitrators who tend to have experience or expertise in the subject matter of the dispute.
  • Involves arbitrators who are less likely to be swayed by sympathy or prejudice than jurors.
  • Has awards that are more difficult to appeal than jury verdicts.

Arbitration does have its downsides. You are foregoing the right to conduct extensive discovery, the right to appeal an adverse judgment, and the right to a jury trial. Therefore, it is important to consult an attorney who can evaluate your unique circumstances in order to determine whether an alternative despite resolution provision is recommended for your particular contract.

Most states have laws governing arbitration in the health care arena. Many state statutes set out specific requirements. The Federal Arbitration Act, however, trumps state laws that are inconsistent with its guidelines. Congress believes that arbitration is a more efficient dispute resolution process than litigation, both financially and in terms of time.

The U.S. Supreme Court has expressly held that the FAA applies to all disputes involving interstate commerce, and that the FAA should be read broadly to require arbitration where the contract contains an arbitration clause. Courts have determined that activities in the health care industry constitute interstate commerce because shipping medical supplies, performance of certain laboratory tests, and recruitment of physicians often take place across state lines. Therefore, most arbitration agreements in the industry are subject to FAA guidelines.

Some basic tips for drafting arbitration agreements include:

  • Present a clear and unambiguous arbitration agreement. Your agreement should be written in clear and explicit language that should, whenever possible, employ language a layman can understand. The agreement should spell out the mechanics of the arbitration procedure and selection of arbitrators, discovery allowed, the waiver of the parties' rights to a jury trial, and the areas or subjects to which arbitration will apply.
  • Present the agreement before the dispute arises. If you wait until after the employee or patient is injured, their lawyers will invariably tell them they will get a larger recovery from a jury than an arbitrator. Thus, with a patient, it is good practice to have him or her sign the agreement prior to your examination. With an employee, be sure to include an arbitration clause in his or her employment agreement.
  • Avoid one-sided contracts. Courts will not enforce arbitration agreements that show "abusive conduct." An example would be a one-sided agreement, or one presented on a take-it-or-leave-it basis. For example, if your employee is bound to arbitrate any and all claims they may have against you and your medical practice, the same must also be true of any claims you may wish to make against them.
  • Do not place a limit on damages. Arbitration is a substitute for court proceedings, not a damage limitation clause that attempts to preclude recovery for relief that a jury might otherwise award.
  • Specify the law of the state that will be applied, most likely the state of your practice, and location for the hearing, often a law office in a particular city.
  • Use a three-arbitrator system. Although legally you need only one neutral arbitrator, for an arbitration proceeding, many successful arbitration programs use three arbitrators. One is selected by each party (called "party arbitrators"), and a third (neutral) arbitrator is then selected by the party arbitrators. Although the presence of party arbitrators may add somewhat to the expense, their additional expertise and viewpoints can sometimes make the difference between winning and losing.

Steven M. Harris is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column.

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