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

       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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     Whether you believe healthcare providers should ask patients to sign pre-claim arbitration agreements, it is a practice that is growing among providers tiring of the burdens imposed by the traditional litigation process. I've previously written here why I think pre-claim agreements between healthcare providers and patients requiring arbitration are fine if made under the proper circumstances and without unfair restrictions on the patient's rights. Legislatures and courts have been getting involved on this issue, although for now the ability of providers and patients to agree to arbitrate remains widely accepted.

     Nonetheless, providers seeking to require arbitration would be well advised to take steps to anticipate potential legislative and judicial limitations on such agreements, which will likely rest on the notion that they cannot be enforced because they are "contracts of adhesion."  Essentially, this argument assumes there is such a vast difference in the bargaining power of the provider and the patient that the patient's consent to an arbitration agreement while in the process of seeking healthcare services was effectively coerced. 

     One way to deal with the "contract of adhesion" argument in advance is to include in the arbitration provision an "opt out" clause by which the patient is given a reasonable period of time to reject the arbitration requirement after the agreement is signed. In a consumer case outside of healthcare decided last week, such an opt-out clause was the key to the arbitration agreement being upheld. As reported by Shannon P. Duffy in The Legal Intelligencer via the New Jersey Law Journal online (subscription required), U.S. District Judge Michael M. Baylson decided the defendant's standard arbitration clause in Clerk v. ACE Cash Express, Inc. should be upheld:

"Here, because plaintiff was given the express opportunity to reject the arbitration agreement and failed to do so, plaintiff's argument that the arbitration agreement was presented on a take it or leave it basis fails, Baylson wrote."

This same logic would appear to be compelling in the healthcare context.

     I am not suggesting that an "opt -out" clause is required or even advisable in all provider-patient arbitration agreements. Where such arbitration agreements are not already precluded by statute or binding precedent, providers may prefer to take their chances fighting off "contract of adhesion" arguments than lose the benefit of all the agreements from which patients will opt-out. However, with advice of counsel in each jurisdiction, an opt-out clause is something to consider along with all of the other techniques by which providers can seek to have their arbitration agreements upheld. They also may make mandatory arbitration provisions more palatable to providers who fear a backlash from their patients and the public.

[Image: Band-Aid brand adhesive bandage manufactured by Johnson & Johnson, by Svetlana Miljkovic, June 20, 2006]

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     I'm pleased to report that Mediate.com has included this blog in its list of Featured Blogs. Mediate.com is the leading website for "everything mediation." Each week, managing editor John Ford reviews the featured bloggers' sites and selects 8 to16 blog posts to be quoted, in whole or in part, at Mediate.com. If you are not already familiar with Mediate.com, there's a variety of other useful mediation information on that website as well. You can click over there by using the badge in the column immediately to the left of this post.

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     I just read an excellent article on the decision process for in-house corporate counsel considering self-disclosure of a regulatory infraction.  Richard Marshall's piece in Corporate Counsel, aptly titled "Uuuhhh, Look, We Messed Up Here," provides solid, practical advice that applies to the healthcare industry as well as the more general business audience for whom it was written.

     At the heart of any effective self-disclosure are the same elements often associated with effective apologies in the healthcare malpractice setting. As with patients and families who have suffered harm, just saying "I'm sorry"  to a regulator is not enough. The healthcare provider in both cases must offer an explanation of what happened; proof that corrective measures have been taken; appropriate compensation for any harm caused; and a sincere acknowledgment of responsibility.

     Having taken these steps, the self-disclosing provider has framed the discussion of future regulatory compliance in a more favorable way. Although a regulator receiving such self-disclosure will not be legally bound to approve a fair and reasonable resolution, most will. 

[Image: Mea Culpa, by Robert Bryce Muir 2006, Sculpture from Grizedale Forest, photo by Russ McGinn, June 2006]

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     An interesting battle has developed in New Jersey over the billing practices of healthcare providers that do not "participate" in health insurance networks established by their patients' insurers. Participation in such networks generally requires the hospital, physician or other provider to contractually accept the payment schedule of an insurer as payment in full for services provided to any person covered by that insurer's network. Some providers choose not to "participate" (i.e., do not sign participation agreements) with certain health insurance networks. That choice may result from the provider's rejection of the insurer's fee schedule, a dissatisfaction with the utilization rules and practices of the insurer, or a generalized aversion to any arrangement that might interfere with the provider-patient relationship. Whatever the reason, most non-participating providers believe they have no obligation to adhere to an insurer's fee schedule when billing patients who are covered by that insurer's network. So far, so good.

     The problem arises from the practices of the provider after sending the patient a bill in excess of the amount allowed by the network's fee schedule. Under most patients' coverage plans, the patient is responsible for copayments computed as a percentage of the out of network provider's reasonable charge. Such copayment percentages can range from 10% to 50%, resulting in a substantial out of pocket cost to the patient if collected by the provider. But some providers choose not to pursue collection of these copayments, either on a case by case basis, or as a matter of regular practice. Providers who "waive copayments" are happy enough to accept the insurer's payment of the "covered" portion of their fees, and their patients are happy to receive no "balance bill." The insurers are not so happy. (Note that if the patient or the insurer thinks the provider's charge is not "reasonable," a different problem arises, as previously discussed here.)

     For insurers, copayments serve an important function: they create a strong disincentive for patients to utilize non-participating providers. This function is carefully calculated into the rates charged by insurers for the coverage provided to their insureds. Insurers argue that by "waiving" copayments, nonparticipating providers are frustrating the intent of the insurance coverage contract between the insurer and the insured. Although payment for any given service of a nonparticipating provider is not increased by the waiver of a copayment, the widespread practice of waiving copayments ultimately drives up the utilization of nonparticipating providers, and thus overall payments to providers are increased.

     The legal conundrum created by this practice exists because it is a three way dispute involving two contracts but no three way agreement. The provider-patient relationship permits them to make any deal they want concerning payment for the provider's services. The insurer-patient relationship is based on a contract with clear rules about what the insurer will pay for and what it will not. But the provider and the insurer have no relationship and no agreement whatsoever.

     An article in the New Jersey Law Journal on December 17, 2009 (subscription required) by healthcare attorney David Barmak laid out the case for the nonparticipating providers in this battle. Relying on the lack of privity of contract between the insurers and the nonparticipating providers, and citing to the  New Jersey Appellate Division decision in Garcia v. Healthnet of New Jersey, Inc., he argues that recent New Jersey challenges of the waiver of copayments are "founded on economics and business decisions [with] very little basis in the law..." He concludes by saying "New Jersey law permits providers to operate their practices as they so choose with respect to the financial issues independent of Horizon's [i.e., Horizon Blue Cross Blue Shield of New Jersey's] review and control...In short, out-of-network physicians are permitted to decide for themselves whether to collect or write off an account balance based on their own judgment of what is in the practice's and the individual patient's best interest."

     Responding in an op-ed commentary in this week's New Jersey Law Journal (February 2, 2010, subscription required), Thomas Eschleman claims that David Barmak's argument "is flawed and inaccurately portrays recent lawsuits by Horizon...against out -of-network [providers]." Eschelman, associate general counsel of Horizon Blue Cross Blue Shield of New Jersey, dismisses Garcia v. Healthnet as "an unpublished, and factually distinguishable, Appellate Division decision." He points to language in another case and various regulatory authorities supporting his contrary view. He challenges Barmak's "privity of contract" argument by pointing out that the nonparticipating providers  hold themselves out as accepting the benefits of their patients' insurance contracts, and often assert a right to payment under those contracts. Finally, Eschelman suggests that at least one lawsuit involving Horizon included allegations that providers artificially boosted their stated charges after leaving Horizon's network.

     This battle will continue until a more definitive solution arrives, whether via judicial decision, new legislation or regulatory pronouncement. Until that occurs, the resolution of any given case will require a close study of the facts, and attention to the legitimate interests of all three parties to the dispute. 

[Image: A three way collision on S309 in Hezheng County, China, by Vmenkov, July 24, 2009]

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     Earlier this week I wrote about the inevitability of conflict arising out of the leading ideas behind healthcare reform.  Restructuring healthcare payment systems to reward efficiency and quality rather than volume will only be effective if they result in a decrease in overall spending. With that "smaller pie" will come disputes over how to slice the pie. But efforts to contain healthcare costs will not be limited to elegant reform measures based on lofty principles. Especially when government payers are involved, healthcare cost containment may take a more direct approach.

     Witness the "turf war" between anesthesiologists and Certified Registered Nurse Anesthetists ("CRNAs") going on in California. As reported by James A. White in The Wall Street Journal Health Blog, Governor Arnold Schwarzenegger last year exercised an option under the Medicare program to permit CRNAs in California to administer anesthesia without a supervising anesthesiologist. The California Medical Association and the California Society of Anesthesiologists filed a lawsuit to block Schwarzenneger's decision. Prior to California's decision, 14 other states had opted out of the physician supervision requirement.

     Healthcare cost containment by government payers can occur through licensing and enforcement proceedings that directly or indirectly change the scope of practice permitted in a given healthcare sector.  A health care adviser to California's Governor told Anesthesiology News that "the purpose of the opt-out decision was to reduce pressures on and increase access to services at small and rural hospitals." Hmm. The WSJ Health Blog notes that California has the largest number of anesthesiologists in the U. S. at 5,400. Leaving aside the debate on patient safety, it is not hard to understand that paying unsupervised CRNAs costs less than paying for physician supervision.

     Once states take action to change a permissible scope of practice, the action shifts to how that change will be applied by hospitals, physicians and third party payers. The California rule change did not mandate the use of unsupervised CRNAs. But when payers demand lower prices and hospitals compete for patients, possible cost reductions have a way of becoming necessary cost reductions. That's when the fun begins.

[Image: Turf War Graffiti at Glanmoelyn, Llanrug, United Kingdom, by Eric Jones, August 12, 2006]

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     With all the media coverage of healthcare reform and its political ramifications, its easy to get caught up in the debate. Notwithstanding the recent setbacks, there will be some kind of reform in the not too distant future, if only because the sources of healthcare payment cannot keep up with the costs of providing care. Most healthcare economists agree that real reform will only come when the financial incentives of the current system are altered to reward quality and efficiency rather than volume. 

     A concept frequently put forth to address this objective is the "accountable care organization" or "ACO" (any reputable idea in healthcare must be reducible to a three letter acronym). Essentially, ACOs are associations of healthcare providers (typically, doctors and hospitals) that share responsibility for the coordinated care provided to a pool of common patients. ACOs can share clinical information and operate with some degree of financial integration. The providers in the ACO are then jointly "accountable" to the third party payers who fund the care provided to their beneficiaries by the ACO. (See the recent post in the Healthcare Economist explaining ACOs and some of the key characteristics of various ACO models.)

     Another concept aimed at the same objective is "value based purchasing" or "VBP."  Under VBP, the current system of Medicare payments to physicians (based on a per task menu of fees) would be converted to one based on efficiency and quality.  In order to assess a physician's efficiency and quality, the services provided to any patient would have to be grouped with all services within the same "episode of care." As noted in another post at the Healthcare Economist, this process of grouping carries with it a number of unanswered questions.

     Sooner or later, the use of ACOs and VBP in some form will become a reality.  There is no other politically viable approach on the horizon to reducing healthcare costs. But that will be only the beginning of a wave of conflict within the world of healthcare providers and third party payers.  ACOs, VBP and any other three letter acronym to come will only reduce healthcare costs by yielding a result by which the total dollars paid to doctors and hospitals for providing care to a group of patients is reduced. Otherwise, why bother? When the pie gets smaller, everyone's piece will get smaller, too. Those who provide the highest quality, most efficient services may get a larger piece, but that will only make everyone else's piece even smaller.

     Most doctors and hospitals do not believe they are overpaid under the current regime. Many have  experienced decreased net income over recent years. All will enter the new arena of ACOs and VBP firmly holding the "bottom line" position that they must at least maintain their financial status quo. The convergence of so many irreconcilable bottom lines will create conflicts that play out in a variety of scenarios. Who will lead the ACO? Who will be allowed in or kept out? Who will decide the internal compensation model, and what will it be? What effect will the ACO have on existing hospital-physician relationships? On existing medical practice agreements? How far will ACOs go to create, preserve and assert their control over patients in dealing with third party payers? How much of the benefit of their "efficiency" will providers share with third party payers?

 [Image: Thanksgiving pie aboard U.S. naval ship in the Persian Gulf, by Photographers' Mate Airman Rome J. Toledo, November 25, 2004]

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