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

 [Image:  A supreme pizza with pepperoni, peppers, olives and mushrooms, by Scott Bauer, USDA]

          Last week, the U. S. Supreme Court decided the much anticipated arbitration case, Hall Street Associates, L.L.C. v. Mattel, Inc., which I first wrote about when it was argued last November.  The question faced by the Court in Hall Street was whether the parties to a dispute governed by the Federal Arbitration Act ("FAA") could, by agreement, provide for more expansive judicial review of the arbitrator's award than the narrow grounds stated in the FAA.  In particular, the case involved an agreement that the federal district court could vacate, modify or correct the arbitrator's award to correct legal or factual error.  The FAA permits an award to be vacated or modified only when it is in excess of the arbitrator's authority, or when it results from fraud or arbitrator misconduct.

          By a 6-3 vote, the Court held that the statutory grounds for vacating or modifying an arbitration award under the FAA are exclusive, and not subject to expansion by agreement of the parties.  The Court thereby resolved a conflict among the circuit courts, and upheld the more "traditional" view of arbitration argued by many, including the American Arbitration Association ("AAA").  This was a good result.  It preserved the essence of the arbitration process under the FAA that makes it an attractive alternative to courtroom litigation.

          But the Court did not slam the lid on all future use of  "enhanced arbitration."  Arbitrations not governed by the FAA may or may not permit the parties to agree upon heightened judicial review, depending on the arbitration statute or rule involved.  Even under the FAA, as noted by the National Arbitration Forum ("NAF"), the possibility remains that parties could expressly agree to require the arbitrator to apply the substantive law governing their underlying dispute.  Thus, the losing party could attempt to challenge the arbitrator's award in court on the grounds that the arbitrator failed to "follow the law," and thereby acted "in excess of the arbitrator's authority."  The distinction between the parties' agreement that (a) the arbitrator's award will be subject to "enhanced judicial review" (a result not allowed under Hall Street) and (b) the arbitrator's award can be vacated for "exceeding the arbitrator's authority" if the arbitrator did not follow the law, is a subtle one, to say the least.  For  a fuller explanation of this theory, see Judge Posner's opinion in a case cited by the NAF, Edstrom Industries, Inc. v. Companion Life Insurance Co., 516 F.3d 546, 550 (7th Cir. 2008).

          What does this mean for the healthcare lawyer and client considering the use of an arbitration agreement?  If you like the idea of "traditional" arbitration, with the scope of discretion, speed and finality that it offers, make your case subject to the FAA and select an arbitrator using rules that are consistent with your expectations.

          If you are not comfortable with that scope of arbitral authority, you could attempt to get your case outside the FAA, expressly require the arbitrator to strictly adhere to the applicable substantive law, and require the arbitrator to issue a reasoned award (including findings of fact and conclusions of law).  Procedural rule 20 D of the NAF provides that an arbitrator "shall follow the applicable substantive law."  This approach may or may not get you the judicial review you want, but it maintains that possibility, and holds the arbitrator to a tighter standard.  It also may slow the process and undercut the finality that traditional arbitration offers.

          Finally, if you can't live without absolute certainty that your case will be reviewed on the merits by a sitting judge, just skip arbitration and go directly to court.  You really didn't want to arbitrate anyway.
 
          The beauty of the Hall Street decision is that it leaves parties with this choice.  You just can't have them all.

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          [Image: World Wrestling Entertainment (WWE) superstar Rikishi performs for the troops at Camp Victory, Baghdad, Iraq, December 20, 2003, by TSGT Lias M. Zunzanyika, USAF]


          Until very recently, I viewed the annual announcement of New Jersey's Super Lawyers with considerable skepticism.  Having practiced law for nearly 30 years with my fair share of success and professional achievement, it seemed to me that any such list that didn't include my name had to be faulty.  All of that changed this week when I was named a New Jersey Super Lawyer in the Health Care category (also published in the April print edition of New Jersey Monthly magazine).  Clearly, the folks over at Super Lawyers have finally gotten the kinks out of the selection process. 

          I don't know what made me a Super Lawyer this year, or why some terrific healthcare lawyers I know have yet to make the list.  But I confess that I'd rather be on the list than not.  I wish I could say that I didn't care, but I do, if only a little.  I also admit that I will buy the plaque commemorating this event.  After all, the selection process may never again be as well-conceived, fairly applied and thorough as it was this year - I will let you know.

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                     [Image: The Three Bears, Project Gutenberg etext 19993]


          Thank you to Geoff Sharp, a commercial mediator and barrister from New Zealand who also blogs at mediator blah...blah... for making a point about the timing of a mediation in the course of a dispute.  I pass along his post and amplify it here for those who might not have seen it.  He cites to a recent case from the UK that focused on the award of costs in litigation where the losing party alleged that the prevailing party had failed to mediate and thus incurred unnecessary expenses.
          When is the best time to commence the mediation of a dispute?  As Geoff Sharp put it in paraphrasing "the wise old Judge", the key is identifying "the happy medium: the point when the detail of the claim and the response [are] known to both sides, but before the costs that [have] been incurred in reaching that stage [are] so great that a settlement [is] no longer possible."  In short, not too early, not too late.
          Although this point was made in the context of a litigated case, the same caution about waiting too long applies to any dispute that causes parties to consult lawyers and begin to evaluate their legal options.  In all such matters, as time spent, opportunity costs and out of pocket expenses build, the parties have less and less  to move around on the bargaining table.  The parties also tend to believe (not always correctly, but believe it nonetheless) that their risks become more known and less variable as the elements of the dispute become more familiar.  It also appears to be human nature for the parties and counsel to harden in their positions with the passage of time and the inevitable personalization of the dispute.
          Mediating too soon can be a waste of time.  If the parties don't fully understand their case, they will not be comfortable with the reality testing and back and forth of a facilitated negotiation.  Worse yet, they may adopt false but hardened positions on issues that preclude a settlement later on.  And once parties have assembled for an unsuccessful mediation, they often will simply conclude that "mediation won't work in this case."
         Counsel should actively focus on this question of mediation timing, and make a purposeful decision about when to propose and accept mediation.  Leaving the decision to one's adversary, the court, or the occurrence of an impasse in direct negotiations misses an opportunity for effective mediation advocacy, and perhaps the best result for one's client.   Many mediators  (including this one) are happy to discuss mediation timing with both counsel to explore the issues raised here, and should be sought out for that purpose.

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          [Image: "Men and women employees on the 'swing shift' of North American's Inglewood, Calif., aircraft plant enjoy their lunch periods," October, 1942, from the Franklin D. Roosevelt Library & Museum.]

          I previously wrote here about the growing trend for healthcare payers to pursue claims against their beneficiaries for the proceeds of malpractice settlements, relying upon subrogation provisions in their health plan documents.  Medicare has begun to adopt this approach as well, as reported here.  These cases highlight the importance of accounting for potential subrogation claims when negotiating the settlement of these disputes, and bringing all of the potential claimants to the bargaining table.

          Last week I read in Health Plan Law, a blog on ERISA group health plan law and administration, that ERISA heath plans are riding a wave of successful court decisions making it clear that these subrogation claims are here to stay.  In his ERISA Group Health Plan Subrogation Update, Roy F. Harmon, III, digests several cases already decided in 2008  that build upon the foundation laid in the U.S. Supreme Court's decision in Sereboff v. Mid Atlantic Med. Serv., Inc., 126 S. Ct. 1869 (2006).  Although he notes that plans have encountered some problems "involving decedents and their estates, and in the perennial disputes over the adequacy of plan language," in the 2008 cases he reviews, "the health plans have by and large prevailed."  But contrast the outcome in Benefit Recovery, Inc. v. Donelon, a Fifth Circuit case involving state insurance regulation of subrogation rights of an insured plan, as discussed by the same author just yesterday.

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   [Image: Engraving of Gilbert  and Sullivan's Trial by Jury, from Illustrated Sporting and Dramatic News, by D. H. Friston, May 1, 1875.]


          Recently I wrote about the risk of an "intuitive decision" associated with placing the resolution of a dispute in the hands of a judge.  As I was writing that post, I came across reports of a case recently decided in West Virginia that should get the attention of every hospital involved in a medical staff dispute that could end up before a jury.  As mentioned in West Virginia Business Litigation by Jeffrey V. Mehalic, Hamrick v. Charleston Area Medical Center ("CAMC") was a suit filed by a surgeon against a West Virginia hospital alleging misconduct and damage to his reputation resulting from the revocation of his medical staff privileges.  The case was covered by Eric Eyre of the Charleston Gazette at the start and end of the trial.

          CAMC revoked Dr. Hamrick's privileges when he failed to obtain a required medical malpractice insurance policy, which Dr. Hamrick insisted was not necessary as long as he maintained an adequate self-insurance fund.  That issue led to separate proceedings about the  adequacy of physician self-insurance under West Virginia law, in which Dr. Hamrick prevailed, and ultimately inspired state legislation permitting physicians to rely upon self-insurance.  In the meantime, Dr. Hamrick pursued his suit against CAMC for damages and immediately obtained an injunction reinstating his privileges, thus permitting him to continue in practice at CAMC during the litigation.

          So, notwithstanding that Dr. Hamrick had established his right to self-insure in court, that the West Virginia legislature had enacted a statute permitting self-insurance of the kind maintained by Dr. Hamrick, and that Dr. Hamrick's practice at CAMC was never interrupted, what did the jury do at the conclusion of the trial?  They returned a $25 million verdict for Dr. Hamrick.

          I know only what I read in the press about this case, but it appears some facts were brought out at trial that caused the jury to conclude that CAMC management had been less than forthright in their handling of the insurance dispute with Dr. Hamrick.  Charleston attorney Scott Segal, who represented Dr. Hamrick in the case, described some of these facts in a letter to the editor of the Charleston Gazette.  On the other hand, counsel for CAMC, Bob O'Neill, told the jury that "CAMC had acted reasonably and in good faith...they bent over backward," efforts which apparently included an offer to purchase a temporary commercial insurance plan for Dr. Hamrick until the matter was resolved.

          Perhaps the best insight into the jury's decision comes from Karen Miller, Dr. Hamrick's sister and lawyer, who was quoted after the verdict in the Charleston Gazette as saying, "We need new administrators over there, and we need a new Board of Trustees.  That's what the jury is telling the community, just like the doctor's [sic] have been."  Apparently there has been some dissatisfaction within the community served by CAMC in recent years concerning the performance of its leadership.  But was it the job of the jury in this case to address that dissatisfaction, or to take action that would lead to a change in CAMC's leadership? No matter what facts came out at trial, it is difficult to see how Dr. Hamrick could have established anything more than nominal damages, let alone $5 million in compensatory damages.  The $20 million punitive damages award seems to have been aimed solely at getting rid of CAMC's Board and management - even though the community will ultimately bear this cost.  Perhaps an appeal will turn things around, but I understand that West Virgina offers no appeal of right, so the state's Supreme Court must first agree to take the case.

          What's the moral of the story?  Hospitals locked in a dispute with a physician that may end up being decided by a jury must take into account the uncertainty of the jury's reasoning process, and the certainty that the jury will not be made up of hospital administrators or health care lawyers.  Even when a hospital is sure it is  "in the right", it may end up with a very bad result.  My guess is the case didn't settle because CAMC believed (1) that it was "right," and (2) that Dr. Hamrick's last settlement demand was higher than CAMC's risk of a bad jury verdict.  Whether CAMC was "right" or "wrong" didn't matter.  Getting hospitals to understand this, and helping them to correctly assess the  competing risks, are the mediator's bread and butter.

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         [Image: Marionette puppet show for kids in Asbury Park,  NJ,  July 23, 2006,  by Jackie.]



         I read an op-ed in yesterday's Courier News online entitled "New Jersey Ought To Map Out Its Hospital Closings."  The position stated there was that economic forces are going to result in the closure of a certain number of hospitals in New Jersey, and it would be better for the legislature to "compile and publish a roster of hospitals it believes should be targeted for closure," and then to act on that list.  The author sees this as a better outcome than the current course, which might be called "survival of the fittest."  Admittedly, it has resulted in a string of bankruptcies and closings over the last few years, with no end in sight.  However, leaving aside what I believe is a false assumption - that a fair and politically unbiased "roster" of hospitals could be formulated - this theory is more fundamentally flawed.
          There are other options open to the governing boards of New Jersey's struggling hospitals besides filing for bankruptcy and closing down. I wrote here previously that  hospital boards need to candidly assess their financial condition and prospects long before bankruptcy becomes imminent, and collaborate with the other stakeholders involved to arrive at their optimal result.  Far better for these governing boards and their constituencies to decide their hospitals' fate than someone at the Department of Health.  But this will require hospital boards to assess, deliberate and collaborate as few have done to date. 
          Writing an editorial in the current  Metropolitan Corporate Counsel, Andrew Sherman and Boris Mankovetskiy amplify this theme by asking, "Is Bankruptcy The Cure For Distressed Hospitals?"  They point out the inherent limitations and difficulties of using a bankruptcy filing to cure a financially ailing hospital, and suggest that other options (debt restructuring, strategic alliance or sale) will often yield a better result.
          The governing boards of New Jersey's financially troubled nonprofit hospitals have the duty and the authority to assure that their hospitals' missions are fulfilled.  That means doing something other than "flying them into the side of a mountain" (a phrase favored by one of my former partners), and then handing the keys to a bankruptcy judge.  We can only hope that they will seize the opportunity to determine their own fate.

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