Health Plans Dominate In Arbitration
If a health plan enrollee wants to overturn their insurer's denial for covering a medical procedure or test, their chances are about even money if they file an appeal with state regulators to have the decision overturned.
But if that same enrollee wants to sue that health plan, they face a much tougher battle.
Virtually every health insurer operating in California mandates that their enrollees litigate such matters in private arbitration. Unlike appeals, there are no state regulators to expedite the process. Enrollees have to hire their own attorneys and expert witnesses to go up against a health plan's legal staff and its own witnesses, a process that can cost tens of thousands of dollars.
Even if health plan enrollees are able to present a legally compelling case in arbitration, they rarely prevail. A retrospective review of health plan arbitration cases going back to 2009 by Payers & Providers found that health plans win about 80% of such cases on average.
That rate of victory is virtually unchanged since the state-operated California Research Bureau last looked into the matter nearly 15 years ago.
In a report issued by the bureau in 2000, its authors declared that claimants often have difficulty hiring attorneys, few referees are referred future cases if they award claimants judgments over $1 million, and that health plans tend to have the upper hand in picking arbitrators because they usually keep tabs on an arbitrator's prior track record – something that the claimants are not legally entitled to until after an arbitrator is selected.
At the time the report was released, the arbitration process had already been improved for claimants in a case that was decided by the California Supreme Court in 1997, Engalla v. Permanente Medical Group. A state court had ruled Kaiser Permanente abused the arbitration process by requiring each party pick a pool of potential arbitrators – a complicated process that permitted it to engage in delaying tactics and potentially fraud.
Although the ability of health plans to dictate virtually every point of how the arbitration process should proceed was rolled back by Engalla, it remains “a process that is often stacked against people,” said Betsy Imholz, special projects director for Consumers Union in San Francisco and herself an attorney.
Records show a sizable number of arbitration cases are dismissed via the legal process known as summary judgment. That means the health plan filed a motion stating that the plaintiff – known as a claimant in arbitration – did not have a case strong enough to try the facts, and the referee concurred. Many case records that are publicly available indicated the plaintiffs could not find attorneys to represent them, or their attorney left the case prior to its conclusion.
Imholz said that consumers are often swept up in the seeming contradictions of private arbitration. Although it is presented as being less formal and complicated than a court proceeding, referees still enforce rules of evidence similar to those in a court of law, scrutinize the often shifting standards of care for the treatment of medical conditions, and rely on case law created by state and federal court systems for the rationales behind their decisions.
“The jargon in health insurance policies and what is covered and not covered is often incomprehensible, and the same legal questions arise as they would in a court of law,” Imholz said. “But many people think it's an informal process, and they don't hire an attorney because they think they can represent themselves, or they can't afford one.”
Indeed, there are several instances of claimants representing themselves in arbitration hearings over the past five years, records show. In virtually every case, they made assertions that were not supported by expert witnesses and therefore were easily brushed aside by the attorneys who represent the health plans.
In some time periods, such as the third quarter of 2011, health plans prevailed over individual plaintiffs by a margin of nine to one. In 20 of the 36 cases won by the health plans, it was through filing successful motions for summary judgment.
In another case, a successful motion for a non-suit – an argument legally similar to summary judgment but made further into the litigation process, records show that the claimant's attorney asked to be dismissed from the action after two years of representing the client and just 30 days before the hearing. The claimant in that case had allegedly had his broken wrist fractured a second time by medical personnel when they were replacing a faulty cast.
The referee in that case, Benjamin A. Diaz, a retired Sacramento County Superior Court judge who specialized in real estate law when he practiced as an attorney, wrote that “claimant's contentions are based on rank hearsay evidence...and both claimant and his wife are just lay persons.” He did permit the claimant's testimony to demonstrate the “state of mind” that brought him to arbitration.
“Your odds are definitely a lot less than winning in Las Vegas,” said Jamie Court, president of Consumer Watchdog, a Santa Monica-based advocacy firm.
Consumer Watchdog tried to amend the arbitration process more than a decade ago by sponsoring SB 458, a bill that would have allowed health plan enrollees to take their plans to court if they desired. The bill passed the Senate but died in an Assembly committee before ever coming to a full vote before that body.
In the four cases that claimants won in the third quarter of 2011, the awards varied widely. In one case, the spouse of a patient who died in 2008 due to the bungled prescribing of antibiotics for a minor skin infection was awarded $315,725. The arbitrator in that case was a former police officer who served on the bench in Orange County Superior and Municipal Courts, records show. But another claimant who lapsed into a two-week coma after their case of pneumonia was diagnosed but survived received more than $834,000. The referee in that matter was a former member of the Consumer Attorneys of California.
Some of the claimants who have prevailed in recent years won judgments above $1 million, and a handful have won more than $2 million. However, a case litigated last year in San Francisco Superior Court dwarves them by comparison: Attorneys won a $38.6 million judgment against hospital operator Dignity Health for a 19-year-old patient who suffered a surprise stroke and was misdiagnosed at Bakersfield Memorial Hospital, which is operated by Dignity. That led to a delay in the patient's care, who suffered massive brain damage as a result. The judgment was among the largest in California in recent years.
Aside from likely resulting in smaller awards than in court cases, the facts surrounding arbitration matters are all but sealed from the public. Health plans are bound by state law to provide case records to the Department of Managed Health Care, but in a heavily redacted format that systematically omits names of both the plaintiffs and the health plans, the venues where they received care, as well as the witnesses who testified. Recently, the DMHC fined Kaiser Permanente nearly $200,000 because it was filing its arbitration cases with the agency lacking the required redactions.
And attorneys were decidedly reluctant to speak about the process as well: A half-dozen who specialize in medical malpractice – including two San Francisco lawyers who won the Dignity lawsuit – did not respond to requests for comment.
Consumer Watchdog's Court suggested that the attorneys may have avoided commenting on a process they may have to involve themselves in with future clients.
The referees themselves may also have a vested interest in favoring the health plans: The likelihood they will hear future future cases.
Under California law, a single party to a contract can choose the process for binding arbitration, and health plans often pick the venue for arbitration. Anthem Blue Cross of California, for example, typically asserts in its enrollee contracts that an Irvine-based organization called Judicial Arbitration and Mediation Services, or JAMS, be used for arbitration proceedings.
“They don't want to be on the blacklist,” Court said.
Imholz concurred, suggesting that referees might be biased in favor of the health plans even if they appear painstaking in their fairness.
“It is human nature to not want to offend someone who is going to give you business, even if it's unconscious,” she said.
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