California legislators and consumer groups are revving up an effort to abolish or limit mandatory arbitration at HMOs.
Foes of mandatory arbitration were energized by a California Supreme Court ruling in July that Kaiser Permanente may have engaged in fraud in promising a speedy arbitration system while delaying a malpractice arbitration case.
California's high court was the first in the country to rule-in Engalla vs. Permanente Medical Group-that enrollees who show that an arbitration process is unfair can opt out of the system and take their grievance to court, says David S. Rand, the Engallas' attorney.
At least one bill moving through the California Legislature would release an enrollee from arbitration if a neutral arbitrator, agreed to by both parties, isn't chosen within 30 days of an enrollee's demand. The Legislature isn't expected to act on the bill during this session, which ends this month, but proponents say the bill will be back next year.
Most California HMOs handle coverage disputes using mandatory arbitration, a system in which an enrollee is required to pursue grievances against the HMO through an arbitrator rather than through the courts.
But only Kaiser and Cigna Health Plans require arbitration for malpractice claims. That's because only Kaiser and Cigna indemnify their physicians against malpractice claims.
Proponents say arbitration is cheaper and usually faster than going through the courts and that it can avoid the multimillion-dollar jury awards in malpractice cases.
Opponents counter that, at least in Kaiser's case, arbitration often takes longer than court cases. Also, they say, under mandatory arbitration enrollees are forced into a system that frequently doesn't compensate enrollee grievances adequately. And because arbitration decisions are kept private, the system can conceal wrongdoing by plans and physicians.
State lawmakers held an informational hearing on the arbitration issue last month in Los Angeles. Linda Ross of Yucaipa, who charged Kaiser with malpractice because her mother died after a long delay in receiving treatment in an emergency room, made a stirring plea at the hearing to change the arbitration system.
Ross said her arbitration lasted more than three years. She was eventually awarded $150,000 through arbitration, but that was far less than a jury would have given her, according to Consumers for Quality Care, a Los Angeles group that opposes mandatory arbitration.
Business and insurer representatives say Consumers for Quality Care echoes the arguments of trial lawyers, whose interests are in bringing more cases to court.
Advocates of mandatory arbitration argued at the hearing that malpractice cases also take a long time to try in court. Maureen O'Haren, executive vice president for legislative affairs for the California Association of Health Plans, told the hearing that most arbitrations in simpler contractual cases are concluded within six months.
Margo Hunter, of Consumers Union in San Francisco, said at the hearing that HMOs should not require arbitration "unless the consumer has the option to decline to participate once the dispute arises, or unless the consumer has the right to reject the results."
Consumers Union says arbitration is a good alternative for resolving disputes if it's conducted fairly and quickly. The organization supports the proposed legislation that would release enrollees from the arbitration requirement if the arbitrator hasn't been named within 30 days.
The closely watched Engalla case on which the state Supreme Court ruled demonstrates the abuses of arbitration, opponents say.
The family of Wilfredo Engalla charges that Kaiser committed malpractice by failing to diagnose Engalla's lung cancer for five years, instead treating his respiratory difficulty as if it were colds and allergies. It further charges Kaiser with delaying arbitration until Engalla died so the HMO's compensation to the family would be reduced (July 14, p. 40).
Under Kaiser's system, in cases over $200,000 each party picks an arbitrator. Those arbitrators then choose a third, or neutral, arbitrator. Final decisions are based on a majority vote. In cases under $200,000, either party can force the choice of a single, neutral arbitrator.
Kaiser promises enrollees a speedy process, in which a neutral arbitrator will be appointed within 60 days. But in the Engalla case, it took about five months to appoint the neutral arbitrator, and Engalla died the next day.
Moreover, the court found that in only 1% of Kaiser arbitration cases was a neutral arbitrator appointed within the 60-day period, and the average time to appoint a neutral arbitrator was 674 days. The average time to begin a hearing was 863 days.
California's Supreme Court found evidence that Kaiser "may have delayed the selection process in order to ensure that it would obtain the arbitrators it thought would best serve its interests." It sent the case back to a lower court for further hearings on whether Kaiser actually committed fraud in its representations about its arbitration system and in preparations for the Engalla arbitration.
If the lower court finds Kaiser did commit fraud involving its arbitration process, the malpractice case against Kaiser would be tried in court rather than through arbitration.
O'Haren, of the California Association of Health Plans, testified at the Los Angeles informational hearing that in addition to the high court's ruling in the Engalla case, laws signed in the past two years provide ample consumer protection and ensure that "the delays alleged in the Engalla case should never happen again." Engalla died in 1991.
Kaiser says it has made changes to speed up its arbitration process, including increasing its staff. And it has appointed a blue-ribbon panel to study whether further changes need to be made.
Pauline Fox, assistant general counsel for Kaiser Foundation Health Plan, says plaintiff attorneys themselves often delay the arbitration process because they are gathering information or considering whether a case can be taken to court, or waiting to see how injuries turn out in malpractice cases. But because Kaiser's motives have been questioned, Kaiser is now taking steps to speed arbitration, even if plaintiff attorneys want to delay the process, Fox says.
O'Haren explained at the hearing that while most health plans use independent organizations that administer arbitrations-such as the American Arbitration Association-the "self-administered" systems of Kaiser and Cigna allow the attorneys for both sides to select the arbitrators.
But Rand argued that Kaiser lawyers, having handled numerous cases, are more likely to know which arbitrators would be sympathetic to their interests.
Despite the media and legislative attention focused on the Engalla case, most health plans have not been flooded with arbitration cases, O'Haren says. That's because plans' grievance procedures are working to resolve disputes, she says. For example, PacifiCare had only one arbitration each year in 1991 and 1992, the most recent years for which O'Haren says she has data.