Healthcare Neutral ADR Blog : New Jersey Healthcare ADR Lawyer & Attorney : Healthcare Neutral : Richard Webb : New York Metropolitan Area

     Earlier this year I wrote about the oral argument before the New Jersey Supreme Court in Guido v. Duane Morris. The case concerns the plaintiffs' right to sue their former lawyers for malpractice based upon a settlement the plaintiffs accepted after mediation two years earlier. It required the Court to reconcile two previous opinions, Puder v. Buechel, 183 N.J. 428 (2005) and Ziegelheim v. Appollo, 128 N.J. 250 (1992). In a decision handed down last week, the New Jersey Supreme Court ruled that the former clients could overcome a motion for summary judgment and proceed to trial - essentially to attempt to prove that the settlement agreed to by them could have been better but for the negligence of their former lawyers.

     Despite assurances in the Court's opinion to the contrary, Guido paints a large bullseye on every lawyer whose client has second thoughts about a mediated settlement after the ink is dry. Significantly, the Court emphasized that when putting the mediated settlement in Guido on the record,

"unlike in Puder, plaintiffs did not represent to the court that
they were satisfied with the settlement, or that the settlement
was fair and adequate. (emphasis added) The entirety of the colloquy between the court and plaintiffs concerning the settlement addressed but two questions:  whether plaintiffs understood and agreed to abide by the settlement terms, and whether plaintiffs were subject to any impediments in understanding those terms.  Glaringly absent is any representation by plaintiffs that the settlement was 'fair' and 'adequate,' a representation deemed crucial in Puder."

 

      Did the Court really believe that the plaintiffs in Guido v. Duane Morris would not have answered "yes" if asked whether they were satisfied with their settlement, and whether it was fair and adequate? Apparently these are now magic words that all counsel would be wise to include in written acknowledgments from their clients upon approving any mediated settlement.

     [Image: Kitano Odori kabuki dance, by Onihide, April 18, 2009]
 

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[Image: "Cap'n Archie" fortune telling machine, Archie McPhee store, Seattle, Washington, March 20, 2007, by Joe Mabel]

     Healthcare providers and insurers sign contracts every day that extend well beyond the horizon of the world in which they operate. The unknown dimensions of the future healthcare marketplace became even more uncertain with the recent passage of federal healthcare reform legislation. Many of the concepts contained in that law are subject to interpretation and political implementation, not to mention the possibility of repeal or modification by a future Congress.

     Healthcare lawyers routinely seek some protection from future uncertainty affecting their clients' contracts by drafting "out" clauses that spring into effect upon the happening of certain significant events. Among these are governmental findings of illegality or adverse tax effects, changes in the law and substantial failure of economic expectations. Typically, these contractual provisions (1) define the potential adverse event; (2) require that the parties attempt to negotiate a contractual amendment to resolve the problem; and (3) in the absence of agreement, permit either party to terminate on short notice. Robin Fisk recently discussed this topic in the context of provider - payor contracting in her Managed Care Contracting & Provider Payment blog. I think the concept has even wider application. Hospital-physician service contracts, joint venture agreements and institutional affiliations of all stripes can also expect to be affected by presently unknown legal and economic developments.

     Allowing either party to terminate a contract upon an adverse event is a simple and effective solution to the problem created by that event.  But it leaves the parties without a contract. Rarely is such an event so intractable that it could not have been dealt with had the parties known of it at the inception of the contract. Rather than terminating the contract, the parties can provide in advance for how they want its negative consequences to be resolved, and then employ an alternative dispute resolution process to reach a solution.

     The key elements of such a provision include (1) a clear definition of what constitutes the adverse event; (2) the principles that will guide how the adverse event is to be alleviated (e.g., "the parties agree to implement the minimum change required to eliminate illegality while preserving the structure and economic result of the relationship to the greatest extent possible"); and (3) a process to resolve any dispute in the implementation of this provision.

     With respect to process, a multi-step dispute resolution clause is particularly well suited to this situation. As recently defined by John DeGroote in his Settlement Perspectives blog, 

A multi-step dispute resolution clause is a contractual provision that requires the parties to an agreement to escalate a dispute through varying levels of management or other processes, such as mediation, using agreed-upon procedures before litigation or arbitration may proceed.

     Along with a multi-step resolution clause, parties seeking to address unknown, adverse events through ADR would do well to define their selection of an ADR neutral to suit the events in question. This requires more than the designation of a neutral to be provided by an ADR service (e.g. AAA, AHLA). It should also include a requirement of experience in representing parties with respect to the issues raised by the adverse event.

     Some unknown adverse events may so dramatically frustrate the parties' original expectations that it makes no sense to continue their contract. Most do not. Rather than abandon or renegotiate an entire contract, a multi-step ADR clause can often preserve the benefit of the original bargain for both parties.

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     Every dispute comes to mediation wrapped in emotion. Sometimes it relates to the wrong or harm arising from the conduct that triggered the dispute. Other times, it is simply the emotion surrounding months or years of being on one side of the dispute and believing the other side to be wrong. Or it can be both. Traditional mediation theory holds that it is vitally important for both sides to have the opportunity to express their emotions, and for the mediator to acknowledge them. This is thought to be beneficial because:

- It may be the first and only opportunity a party has to meaningfully "vent," without which that party can never put the dispute to rest.

- It enables each party to hear what the other really feels, without which a willingness to address those feelings in a settlement cannot be achieved.

- It educates the parties and their counsel on what the mediator is up against, thus guiding realistic negotiations.

     I have always accepted the wisdom of encouraging parties' expressions of emotion in mediation, and have permitted parties to "vent" with few limitations. ("Venting" by counsel is another matter, and generally not worthy of much leeway.)  I have found that parties appreciate the opportunity to express strong emotions, and that my acknowledgment of their feelings goes a long way towards building the credibility required to resolve the dispute later in the day.

     Recently, Dan Ariely, the author of the terrific book Predictably Irrational and the blog of the same name, wrote about "The Long Term Effects Of Short-Term Emotions." His research in the field of behavioral economics is fascinating, and can be related to the decision-making process of parties in the midst of dispute resolution. He has found that decisions made under the influence of short term emotions are often poorly made, by objective standards. Moreover, such decisions have a powerful, precedent setting effect on all later decisions. What does this mean for mediation?

1. Expressions of emotion can create an ideal environment for bad (i.e., irrational) decision-making. Letting parties "vent" may be valuable for the reasons noted above, but the mediator must recognize that it creates the potential for momentum that may be difficult to keep on the tracks.

2- A decision motivated by negative emotions that creates a dispute will tend to lead to subsequent decisions consistent with the first, long after the initial motivating emotions have subsided. People look for and value consistency in their actions. Revisiting the emotions associated with an early decision will help only if those emotions can be carefully separated from the objective consequences of adhering to that original position.

 [Runaway coal train at Fishs Eddy, New York, in the East Branch of the Delaware River, January 1, 1870, Cornell University Library]

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     In the ongoing symbiotic relationship between hospitals and members of their medical staffs, it is understood that the physicians generate hospital revenue by admitting their patients and ordering tests and procedures. But exactly how much is any doctor "worth" in this sense? Thanks to the HealthLaw Prof Blog, I saw that James A. White recently covered this issue in the Wall Street Journal Health Blog. Citing to a study of 114 U.S.hospitals by physician recruiters Merritt Hawkins, the WSJ produced a chart listing average hospital net inpatient and outpatient dollars derived from referrals, tests and procedures done in the hospital.

     The chart showed average hospital revenue ranging from a low of $696,888 (from nephrology) to a high of $2,815,650 (for neurosurgery). The average for internal medicine was $1,678,341. The article doesn't talk about the hospitals' costs to provide the services that resulted in the hospital revenue described. Although some costs are evenly distributed among all patients, some are not.

     Any hospital administrator will tell you that not many days go by without some physician on staff reminding the administrator of how much his or her presence is "worth" to the hospital. Unlike most other fields of endeavor, physicians by law cannot be paid by the hospital for what they are "worth" in business generation. But that doesn't mean physicians will not expect to be compensated for that value in some way. Nor does it mean that hospitals can afford to be oblivious to this calculation of value.

     Whether in negotiating employment compensation, the structure of a joint venture, or the terms of a services agreement, a hospital should know what the physician across the table is worth in hospital revenue. Although this is not the only value of the physician to be assessed, and the hospital cannot base its offer on the value of physician business generation, the potential loss or absence of that hospital business is certainly a major factor in calculating what mediators call the hospital's WATNA (worst alternative to a negotiated agreement).

     This analysis is complicated, and may yield unexpected results. But failing to do it is like ignoring the size of the pot on the table. You will end up paying too much, or folding on deals the hospital can't afford to lose. 

[Image: Hole cards in a game of Texas hold'em, by Thomas van de Weerd, September 2, 2006]

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     Kevin Sack wrote earlier this week in The New York Times about the effect Medicaid cuts are having on patients throughout the country. The focus of that article was the hardship resulting from the decision by more and more doctors to simply stop participating in the Medicaid program rather than accept payment rates that assure an operating loss. As states look for ways to balance their budgets, further cuts in Medicaid appear inevitable, even as the sluggish economy forces more people onto Medicaid rolls.

     Hospitals depend on physician participation in Medicaid in a variety of ways:

- Physicians who see Medicaid patients in their offices keep those patients from using the Hospitals' emergency rooms for non-emergent care.

- Hospitals required by law to provide care to all patients without regard to their financial means must have a medical staff that is prepared to provide the full range of professional services to all, including Medicaid patients.

- Hospitals have "on call" and "coverage" requirements that mandate physician service, as needed, to all patients who enter the hospital without a prior physician relationship.

- Hospitals routinely have numerous exclusive contracts with particular physician groups to provide all of the services within a specialty (e.g., radiology, anethesiology, pathology) as required by all hospital patients. These contracts typically require the physicians' participation in the Medicaid program.

- Hospitals frequently develop outpatient and ancillary facilities separate from the main hospital campus to reach more profitable segments of the healthcare market (e.g. surgicenters, ambulatory care centers, diagnostic imaging centers). These efforts involve physican participation, whether as co-owners, tenants or professional service providers. The hospitals involved frequently mandate Medicaid participation of such facilities to satisfy regulatory requirements, tax exemption criteria or the hospitals' mission statements.

When Medicaid payment rates sink low enough, and too many physicians want out, something will have to give.

     Physicians will argue that they cannot afford to give their services away, at least not to the percentage of patients that may be included in expanded Medicaid enrollments. Hospitals will argue that patient service is a shared mission, and the hospitals' rates of payment from Medicaid are equally miserable. Physicians will counter that the mandates driving the hospitals (as noted above) are hospital mandates, for which the hospitals must bear the cost. Hospitals will counter that they have no source of funds from which to pay those costs.

     This is where mediation can help. Hospitals and physicians facing this problem need to have an ongoing relationship after the current dispute is resolved. A heavy handed, litigation driven, "win or lose" approach to solving the problem is inconsistent with that need. It also ignores the opportunity to identify and build upon common interests, including interests separate from the Medicaid problem. Finally, a neutral with substantive knowledge of the industry can help hospitals and physicians identify solutions that are both financially feasible and legally sound.

[Image: Delancey Street, Bowery, Manhattan, New York City, September 13, 2005]

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     Even before watching the bipartisan healthcare summit on February 25th, I began to think about how I would mediate the divide between the Obama/Reid/Pelosi reform proposal and the position staked out by the Rupublican leadership.  Without knowing it, I was not alone in imagining a mediated solution to this conflict. Mediator Christopher Annunziata wrote in his CKA Mediation and Arbitration Blog that If Anyone Needs a Mediator, It's These People:

"Both sides need to move from their entrenched positions and discuss real options, not just talking points prepared by pointy headed people in Ivory Towers or tucked inside the Beltway.  Having a mediator involved would be very useful."

     A week later, Mediator Lee Jay Berman posted at Eye On Conflict that Real Political Reform Requires Adding a Neutral To the Mix:

"What makes mediation work is the introduction of a neutral third party. Having an unbiased person at the table can bring big picture perspective into the room when all others are mired in the fog of their power games and can't or won't see another approach...A real neutral, who wouldn't be a politician campaigning for reelection, would turn off the cameras, close the door, and encourage everyone to disclose his or her needs, pressures and underlying interests in the privacy and confidentiality of the mediation process."

     Leaving aside all of the ways in which the healthcare reform debate does not resemble the setting required for effective mediation, I began to imagine what I would do if thrust into a room with a commitment from both sides to mediate in good faith.  Having reviewed the parties' respective positions on numerous, individual proposals for reform, I first thought that there must be a way to parse and compromise among these proposals to reach a mutually acceptable outcome. But the more I thought about it, the clearer it became that such an effort would fail. I had an intuitive sense of why it would fail, but I struggled to explain that result in terms familiar to traditional mediation theory. In fact, I started a blog post on this subject, but put it aside, unfinished.

     Shortly after that, I read a description of the Frank Sander Lecture to be given by Professor Lawrence Susskind as the opening plenary of the ABA Dispute Resolution Section's Annual Spring Conference on April 8th: "Values and Identity Conflicts: Proposing a New Dispute Resolution Doctrine." The summary, which appears in the ABA Section of Dispute Resolution's February Just Resolutions Enews (members only), turned on the light bulb in my head.

     As the description of Professor Susskind's lecture puts it:

"Sometimes...disputes are more about values and identities than about interests; when this happens, traditional mediation tactics may not work."

                                                 *  *  *

 "We define values-based disputes as those in which the parties' values and identities are so important to the dispute that they interfere with the parties' ability to settle interest-based issues, or in more severe circumstances, even to proceed with the process of dispute resolution.

                                     *   *  *

Values-based disputes, thus, present special challenges for a mediator.  These include: the usual interest -based techniques may lead to superficial agreements that do not really satisfy the parties' most important concerns (and, thus, may not be durable). This is especially likely when parties conceal their values and identities and initially act as if disputes are really about interests" (emphasis added).

     This is exactly the problem in the healthcare reform debate. For one side, the values associated with providing high quality healthcare insurance coverage to everyone in  America are central to that party's identity, and transcend all of the policy details and budgetary considerations that might be viewed as "interests." For the other side, the values associated with maintaining individual responsibility and promoting smaller government are paramount.

     To really address these differences in values, Democrats would have to acknowledge that, in the end, it doesn't matter how much their healthcare reform will cost, because in their view it assures a fundamental right, and the country will just have to figure out how to pay for it somehow, someday. Not a message suitable for anyone seeking reelection in the current environment. Similarly, Republicans would have to acknowledge that it would not be a bad result if millions of people had no prospect of enjoying high quality healthcare insurance coverage, and instead had to rely on the "safety net" of Medicaid, charity care, and hospital emergency rooms until they could work their way out if it. No great sound bites to campaign on there, either. This is why the proponents on both sides of this public debate speak only in terms of the regulatory nuts and bolts, dollars and cents and parliamentary machinations that continue to make our heads spin.

     I don't know how Professor Susskind's lecture will suggest the mediator should approach this dispute. My guess is that after getting the parties to acknowledge their core values, the mediator would need to facilitate a discussion in which each side accepts those aspects of the other's values that it can agree with, and then builds upon those shared beliefs. Even when values are not shared, each side can be urged to at least respect the other's values, and adopt a willingness to permit the other side to pursue those values in fashioning a mutual resolution to the conflict. I know this probably will not happen in Washington, but the thought process is instructive, and you never know who might be listening to Professor Susskind on April 8th.

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     Really?  A recent article in The Washington Post by Carla K. Johnson points out that doctors have steadily cut their work hours over the last decade, largely in response to a decline in pay for doctors' services.

"It's not that doctors are terrible slackers. Average hours dropped from about 55 to 51 hours per week from 1996 to 2008, according to the analysis, appearing in Wednesday's Journal of the American Medical Association.

That's the equivalent of losing 36,000 doctors in a decade, according to the researchers."

     Is it just me, or does this headline belong with that group of newspaper clippings routinely deadpanned by Jay Leno, e.g.: "Obesity Study Blames Overeating," or "Police Raid Gun Shop - Find Weapons."

     I suspect the same headline would occur if the circumstances applied to lawyers, teachers, auto mechanics, construction workers or anyone else used to being paid for what they do. As our leaders in Washington debate the various ways to pay doctors even less, keep this headline in mind when planning your next negotiation. 

     [Image: "A Very Difficult Case," c. 1905]

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       In case you haven't noticed, the law business - the way law is practiced - has been changing at a rate uncharacteristic of the profession. Financial pressure from the economic downturn is a major contributor to this development. But change was afoot long before the subprime meltdown and stock market nosedive. The viability of the "big law" pyramid model for most purchasers of legal services has been questioned since the starting salaries of newly minted associates crossed into six figures, but only with the disappearance of easy money has awareness of the issue entered the mainstream.

       I am writing about this here because of a fundamental premise of my decision to pursue a career in ADR: that the resolution of most business disputes through litigation waged by opposing traditional model law firms is not an economically viable option for the healthcare industry.  By "traditional model law firms" I mean firms organized under a pyramid structure, deploying all resources available to every aspect of litigating a dispute, and billing on the basis of hourly rates. Instead, I see a growing role for solos, practice groups and firms with no "leverage" imperative, an acceptance of alternatives to hourly rate billing, and a focus on the value of specific tactics rather than an automatic adherence to the traditional litigation roadmap.

       For some time, I have been following the ideas on these and related topics advanced by the bloggers linked on the left side bar of this post under the heading "Recommended Legal Practice Blogs." They each have a unique focus and style, but all are worth a look. Patrick Lamb at In Search Of Perfect Client Service and Dan Hull at What About Paris? (f/k/a What About Clients?) are consistent voices for a new, client centered approach to legal practice emphasizing service and value. I find myself agreeing with almost everything they say. Which brings me to the point of this post.

       Even among the most forward thinking voices in the legal blogosphere, the potentially expanded role of ADR in carrying out the lawyer's goals of improving client service and maximizing value is not given the attention it deserves. Almost all litigated cases are settled. The business of law is much more about settling disputes than it is about litigating cases. Yet most lawyers see it the other way around. Early case evaluations, pre-claim mediation, ad hoc arbitration and success fees tied to settlement (and litigation cost savings) need to be pursued along with the more commonly deployed pre-trial mediation. Indeed, I would expect this initiative to be at the very core of a value based approach to legal practice.

       Since entering the ADR field, I have wondered about the inherent conflict between the interests of the lawyer engaged on an hourly fee basis and the interests of the client in achieving the most economically efficient result. Conventional wisdom says that a good (and smart) lawyer will always forsake the opportunity to earn a larger fee in favor of achieving the best economic result for the client - because a well served client will be back for the next case and sing your praises to others. Unfortunately, I'm not sure this maxim is followed as often as we might think. It is not that most lawyers are consciously calculating their own benefit to the detriment of their clients. Instead, most lawyers are simply thinking in the way they were trained, and in the way they are encouraged to think by the traditional legal model they work within.

       Most lawyers operating in the traditional legal model are like most doctors practicing in a traditional, healthcare setting with fully insured patients. When a patient presents with a complaint, the doctor deploys whatever resources are at his or her disposal to diagnose and cure the problem. Whether it is consultations with specialists, diagnostic tests and procedures, medications, surgeries or other therapies, the limits of modern medicine are the only constraint. For lawyers, depositions are like CAT Scans. It seems you can never be faulted for doing one too many.

       But just as doctors have come to see the economic erosion of their traditional model of practice, so must lawyers embrace what Patrick Lamb, Dan Hull and others have been saying for years now. I'm just suggesting that the proactive use of ADR should be a bigger part of that story.

       [Image: Change, by Felix Burton, May 17, 2005]

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     I just read an interesting post over at John Goodman's Health Policy Blog, "What We Can Learn From The Airlines." Picking up on a story that 79.5% of all U.S. flights were on time last year, he points out that airlines have simply lengthened the "scheduled time" of their flights to improve the chances of "on time arrivals." He goes on to suggest that healthcare providers faced with third-party quality measures will do the same, yielding better measured quality, but no real improvement in quality of care.

     Even assuming the airline assumption is correct (it wouldn't surprise me, but I really don't know), I don't think the conclusion holds for healthcare. Providers will not be able to manipulate the standards imposed by third parties in a way analogous to lengthening scheduled flight times. Perhaps the airline analogy was stretched a bit too far, and his real point is that providers will achieve quality measures in the same way that public school teachers now teach to standardized tests (by which their "quality" is judged). 

     The more interesting aspect of third-party quality improvement measures is that they can only have so much effect before "quality" levels off. Although a worthy goal, that range of improvement is not going to move mountains. The same is true for many of the economic incentive techniques being touted as cost cutting solutions for healthcare (e.g. "gainsharing"). You can only squeeze so much juice out of each tangerine.

 [Image: Tangerine juicers via flickr, by Photocapy, December 13, 2006]

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