Doctors may lose potent legal tactic against insurers

In the late 1990s, New Jersey pediatrician John I. Sutter, MD, was juggling the demands of running a small, inner-city pediatric health center with pursuing a master's degree in health policy and management. Income was tight, and Dr. Sutter said he started paying closer attention to how his insurance claims were being processed and paid. He soon discovered that Oxford Health Plans LLC was shorting him about 10% of what he was due, he said.

“It's not a sizable amount of money, but in a time where attempts are being made to cut back physician payments across multiple levels, any kind of reduction in payments is significant,” he said.

John I. Sutter, MD

Dr. Sutter alleged Oxford systematically bundled, downcoded and delayed payments for services provided by him and about 20,000 other physicians in its network. In 2002, he sued the insurer in New Jersey Superior Court, seeking to represent both himself and a class of similarly situated health professionals. But Oxford argued that Dr. Sutter's contract prohibited lawsuits and class arbitration, and that payment disputes could be resolved only through individual arbitration.

The question over whether Dr. Sutter must fight his payment battle on his own or with his colleagues has reached the U.S. Supreme Court. On March 25, justices will weigh whether such payment disputes can be arbitrated as a group when contracts are silent on the issue.

Legal observers said that if the court ends up ruling for the insurer in this case, it could limit the ability of individual physicians and others to fight such payment disputes as a unit. Class arbitration is an effective method of dispute resolution for physicians and the health care industry and should be protected, said Melinda Martinson, general counsel for the Medical Society of New Jersey. The medical society, along with the Litigation Center of the American Medical Association and the State Medical Societies, issued a friend-of-the-court brief to the high court in support of Dr. Sutter.

“This case is important, because physicians have virtually no bargaining power with health care insurers,” she said. “The participation agreements are one-sided, and payment disagreements that come up usually are about coding and payment policies. The ability to class-arbitrate is really important to physicians, because ordinarily the amounts in dispute might not be that big on a case-by-case basis, but aggregated or over a long period of time, they are significant.”

Did an arbitrator exceed his power?

An attorney for Oxford, which UnitedHealth Group acquired in 2004, declined to comment on the case. In court filings, the insurer argued that the Federal Arbitration Act permits class arbitration only if the parties have agreed to it ahead of time.

“Nothing in the agreement refers to arbitration by or on behalf of a class, and there is no other evidence that the parties ever discussed or contemplated the possibility of class proceedings,” the insurer said.

Oxford denies underpaying Dr. Sutter. In response to the physician's lawsuit, Oxford in 2002 asked the New Jersey Superior Court to compel arbitration under the terms of his agreement, which barred taking disputes to court. The state court granted the motion, and an arbitrator took over the case. The parties made their cases before arbitrator William L.D. Barrett about whether the contract authorized individual or class arbitration, and in 2003, Barrett allowed class arbitration to proceed.

Because the contract clause sends all disputes arising from the agreement to arbitration, Barrett reasoned that class disputes also must be arbitrated, according to court documents. Oxford asked a district court to vacate the decision, saying Barrett exceeded his powers and “manifestly disregarded the law by ordering class arbitration.” The district court ruled in favor of Dr. Sutter, and the 3rd U.S. Circuit Court of Appeals affirmed the decision.

That the Supreme Court took up what appears to be a simple contractual dispute between a doctor and insurer is surprising, said California attorney John A. Meyers, chair of the health care law department at Ervin Cohen & Jessup, LLP. But he noted that a split among the circuits about when class arbitration should be permitted made the issues in Sutter ripe for a high court review. “The issue in this case is, what is the meaning of a clause that appears on its face to permit arbitration?” he said.

Meyers predicted that Oxford will have a tough time convincing the justices that the arbitrator was wrong to allow class arbitration. Under the federal arbitration statute, few reasons justify overturning an arbitrator's decision, including fraud, corruption, misconduct or an arbitrator exceeding his authority.

“The whole point of arbitration is to let the arbitrator interpret and enforce the contract,” he said. “I think the court is going to say, 'You can't whine about this if you're a corporation. You should just write the clause right.' ”

In its brief, the AMA Litigation Center said limiting doctors to individual arbitration — without a class device or another option such as going to small claims court — would leave doctors without any practicable means to have their contractual and statutory rights enforced. Physician organizations also could be prevented from obtaining injunctive relief on behalf of their members, the brief said.

“Injunctive relief is the exclusive remedy associations like the AMA and MSNJ may seek to protect the contractual and financial rights of their members,” the brief said. “Since health insurers like Oxford know that arbitration is a seldom-used and ineffective way of bringing individual claims, they can violate their contracts with doctors with impunity, underpaying doctors and leaving them with no effective means to challenge such underpayments.”

Doctors urged to review contracts

In recent years, courts have shown interest in expanding the scope of arbitration, said Andrew H. Selesnick, a partner at Los Angeles-based Michelman & Robinson LLP and chair of the firm's health care law department. The process is generally quicker and cheaper than litigation.

But the method also ties the hands of health professionals who have no additional remedies after a final arbitration decision, he said. “If they rule against you, you have no recourse.”

Sutter will have a significant impact on how future cases proceed over contract and payment disputes, he said.

No matter how the high court rules, Selesnick said the case is a reminder to physicians to review their contracts with insurers and understand any arbitration clauses that exist. “If you have an arbitration [clause], you're going to arbitration over a dispute. The question is, are you comfortable with that?”

For Dr. Sutter, it has been a long, frustrating road to recoup the payments he says he's owed, but he hopes his case ultimately will help other doctors.

“To have gone this far and have won so many battles in court, I just hope that the Supreme Court recognizes the legitimacy of my claims” and the need for transparency in the insurance industry, he said.