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

                            

[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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       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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     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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Holly Hayes Bovio and Victoria VanBuren over at Disputing were very kind to post Holly's Q&A with me on Mediation in Healthcare.  Disputing has become one of my favorite ADR blog reads, and Holly and I share both a Duke connection and a focus on healthcare. I'm looking forward to collaborating with them again on healthcare ADR topics of interest.

  [Image: Thank You for using the Garden State Parkway, June 5, 2006, via Wikimedia Commons]

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     On Wednesday, January 20, 2010, the New Jersey Supreme Court heard oral argument in Guido v. Duane Morris, a case focused on whether a client could sue his former lawyers for malpractice based on a settlement the client had accepted years earlier.  It was on appeal from an Appellate Division decision in favor of the client that was well covered by Mary Pat Gallagher on LAW.COM in July 2009.  The case will require the Supreme Court to reconcile two of its previous decisions, Ziegelheim v. Apollo, 128 N.J. 250 (1992) and Pruder v. Buechel, 183 N.J. 428 (2005).  The legal community is closely watching the case, and both the New Jersey State Bar Association and the Trial Attorneys of New Jersey participated as amicus curiae.

     As reported by Michael Booth in the New Jersey Law Journal online edition, the oral argument found counsel and the Court struggling to parse the holdings in Ziegelheim and Pruder, with a heavy overlay of public policy considerations involving the attorney-client relationship. Although the outcome will likely be an important milestone in the law of attorney malpractice, its potential effect on the use of mediation should not be overlooked.

     Guido's underlying cause of action was settled after mediation. The settlement was placed on the record in the trial court, and included questioning of the parties to confirm their understanding and agreement to be bound by the settlement. Nonetheless, the Appellate Division found that the plaintiff's later alleged realization that his lawyers had not explained the long-term value and marketability implications of the settlement was a sufficient basis for a legal malpractice claim.  There was no question raised about the propriety of the mediation or the enforceability of the settlement itself (other than an argument by Duane Morris that Guido should have to ask the trial court to reform the settlement before suing his former counsel).  But a Supreme Court decision in favor of the client in Guido should cause lawyers to think differently about how they settle cases in mediation.

     Parties and their counsel often work long and hard in mediation sessions to hammer out a resolution to complex issues. Along the way, each party spends bargaining chips and gains concessions, the implications of which are, of necessity, evaluated on the fly. At the end of a successful day, the parties memorialize their settlement, sometimes subject to a formal agreement and court approval, sometimes not. Along the way, counsel will help their clients understand the legal consequences of their negotiation moves, and usually will take some time to review the final proposed settlement before sealing the deal.  But how much of such good counsel is enough?

     If parties to a settlement can look back with 20-20 hindsight, years later, and successfully assert that legal malpractice occurred based on their counsel's failure to fully explain issues such as those alleged in Guido, the parties' ability to settle many cases in mediation will be significantly hampered. This is not because parties will need to be better informed about their settlement decisions than they are now, but because counsel will need to be prepared to prove that their clients were well informed. Today, counsel can reasonably rely upon a brief conversation, or even a nod, to confirm the client's understanding on a given point. Often, that conversation or nod will follow hours of previous conversations and nods that unfolded during the course of the mediation. Will the awaited Guido decision effectively require all of that to be written down, and fully draped with the litany of disclaimers that characterize formal opinion writing?  If so, each mediation session should be scheduled to include an extra day, post-settlement, for the "c.y.a." exercise.

     One way of dealing with this problem is to have counsel provide a written cover letter to the client in connection with a formal settlement agreement prepared following the mediation. But this option raises the possibility that the client will balk at the formal settlement agreement and allege that the lawyer's explanatory letter came too late.  If the essence of the settlement reached at the conclusion of the mediation is already enforceable, the lawyer is still in the soup.

  [Image: Home-made Hungarian goulash soup, by Hu Totya, October 12, 2008]

 

     The Bar will anxiously await the Supreme Court's decision. In the meantime, if you have thoughts about how this issue affects your participation in mediation, please share your comments.

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[Image: Anselm Feuerbach's painting of a scene from Plato's Symposium, 1869.]

     The Cardozo School of Law Journal of Conflict Resolution will hold its 11th annual symposium in New York City on Thursday, November 5, 2009, entitled "Conflict Resolution at Work, ADR in the Private and Public Sectors."  The full day program will include panels on the use of ADR in real estate, federal government and healthcare.  I will be part of the panel on healthcare along with moderator Ellen Waldman, Jerry P. Roscoe, Chris Stern Hyman and Joan Ilivicky,  The symposium is free, and includes breakfast, a reception and CLE credits! If you attend, please stop by and say hello.

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     Attorney John DeGroote, in his Settlement Perspectives blog, wrote last week about "The Mediator's Proposal: A Great Tool For Yesterday's Disputes."  As John defines it, a "mediator's proposal" is:

"...a set of settlement terms advanced by a mediator in an effort to settle a dispute when the parties have reached an impasse.  The mediator's proposal is made on a double-blind basis to all parties in separate communications; the parties are asked to accept or reject the terms as proposed, with no modification or counteroffer, within a specific time frame."

     This impasse breaking tool, in John's view, is far too accessible, and as a result, may be creating more deadlocks than it solves.  Calling to mind the old Mad Magazine cartoon "Spy v. Spy," in which Spy White and Spy Black engaged in acts of espionage to elicit responses that could be met with predictable countermeasures, John suggests that sophisticated counsel in many mediations are now purposefully working towards an impasse rather than towards a settlement, knowing that a mediator's proposal will be forthcoming.  In his words,

"Compromise is no longer the goal of the mediation exercise; instead it becomes a play to the 'neutral,' whose power to craft the mediation proposal will make her the real decisionmaker."

     John's observation and "Spy v. Spy" analogy, like everything on his blog, are insightful and well crafted.  So am I worried that by making a mediator's proposal in any of my future mediations I may be working against the fundamental principles of mediator neutrality and party self-determination?  Or that I will be creating more deadlocks than I am breaking?  No.

         

     First, the notion that the potential for a mediator's proposal will cause the parties to "play" the mediator rather than mediate in good faith assumes that most counsel are not already "playing" the mediator anyway.  My observation is that most good counsel are always doing a little bit of both.  As a mediator, I expect that, and don't hold it against the client.

     Second, at least under my idea of what a "mediator's proposal" should represent, each party's effort and movement prior to the mediator's proposal are relevant to the formulation of the proposal.  I would not offer a mediator's proposal unless the parties have made significant progress towards settlement, there is a discrete and manageable distance remaining between them, and they both seek my input.  In that case, my proposal is intended to suggest a way for them to finish what they have started but cannot conclude despite their best efforts, and further mediation is not possible.  A party who "hangs back" in the mediation process cannot safely assume that my proposal will simply "split the baby."

     Finally, I think most lawyers will have more confidence in their ability to negotiate effectively through good faith mediation than they will have in their ability to double think me (a la "Spy v. Spy") into an advantageous mediator's proposal. 

     In the truest sense, a "mediator's proposal" is not mediation at all, and if it becomes more than an occasionally used closing technique, the process might better be called a neutral case evaluation.  But as long as parties are showing up to mediate, and cases are getting settled, I can deal with the possibility that somebody is trying to outsmart me.  Let's not forget, Spy White and Spy Black each lost an equal number of their encounters.

[Image: A postcard with the public domain "me worry?" face that later inspired Mad magazine's Alfred E. Neuman]

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     Before you head off for the long Thanksgiving weekend, consider signing up for a teleconference to be held next Tuesday that you might otherwise miss in the post holiday crush.  The American Health Lawyers Association ("AHLA"), through its ADR Task Force, is offering "A Practical Toolkit for Managing Healthcare Conflict" from 3:00 to 4:00 p.m. Eastern Time on December 2, 2008.  You can read the full description of the program and sign up on the AHLA's website.  It is open to AHLA members and non-members.

      Presumably, the teleconference will be based on the "Practical Toolkit for Managing Healthcare Conflict" just published by the AHLA, which is available as a PDF on the AHLA website.  This document is a good summary of the need for conflict management in the healthcare (particularly hospital) setting, and provides a framework for hospital management to approach conflict management comprehensively.  It also addresses the specific requirements for internal hospital conflict resolution processes mandated by the Joint Commission.

       

     No doubt the current economic crisis affecting hospitals in New Jersey and throughout the country  will only make conflict more prevalent and important to manage.  It will be interesting to see whether some of the suggestions made in the AHLA's toolkit, which will carry a new and significant price tag, will gain traction.  I believe what they say about "an ounce of prevention" applies here, but those with the checkbooks may need more convincing. 

     Joining in to hear this program would be a step in the right direction.

 

[Image: A toolbox, by Per Erik Standberg, May 13, 2006] 

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     Legal periodicals these days are filled with stories about the effects of the current economic downturn on the legal profession.  Some offer dire predictions, while others see a cloud with a silver lining.  The American Bar Association wants to feel the pulse of its members on this issue and share the result of its efforts.  You can go to the poll being conducted for the ABA by Survey Monkey to participate.  Paste this into your browser bar to participate: 

http://www.surveymonkey.com/s.aspx?sm=9Dhw2g7bX_2bxfq4mW8eB1Cg_3d_3d

     Tear yourself away from watching your 401(k) and give this poll about two minutes of your time.  I did, and it made me feel better.

[Image: Fishing net, by Goddard Spaceflight Center Sport Fishing Club, May 15, 2003]

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     I heard from Jean Hemphill, Chair of the Health Care Group at Ballard Spahr, that she will be among the speakers at a free seminar on Thursday, October 16, 2008, entitled: "Arbitration of Health Care Claims Seminar: Reducing Malpractice Exposure and Maximizing Your Collections."  The program will be held from 2:00 to 4:30 p.m. at the Philadelphia Marriott West in West Conshohocken, Pennsylvania.

     Other speakers scheduled to appear include Ballard Spahr partners Alan S. Kaplinsky and Jeremy T. Rosenblum, former Duke University General Counsel David Adcock, Keith Maurer and Aaron Rose of National Arbitration Forum spin-off Forthright, and Deborah Lorber, Director of Risk Management, Drexel University College of Medicine.  The agenda promises to "explain how arbitration of malpractice and billing claims can radically reduce malpractice exposure, increase success in collecting on delinquent accounts, and improve patient relations."

     This seminar appears poised to argue the other side of the debate raised by current legislative efforts to ban pre-dispute arbitration agreements between healthcare providers and patients, particularly in the nursing home context.  That debate should go on, but it will be important for both sides to consider alternatives other than an "all or nothing" result.  Among the issues in play:

- Should agreements to arbitrate consumer/patient bills for services rendered be given the same status as agreements to arbitrate claims of medical malpractice?  Should different rules apply?

- Can steps be taken to assure that patients and their families truly understand the meaning of arbitration agreements upon the initiation of a healthcare service, with enforcement of the arbitration agreement being dependent upon adherence to some "industry standard" measures?

- Can healthcare providers and ADR professionals do more to assure the neutrality of mandated ADR processes, and in particular, nullify the perceived advantage of "repeat users" of ADR services?

     If you will be anywhere near Philadelphia this Thursday, consider preregistering via the Ballard Spahr website, and see if the presenters at this program address these questions.  You can share your impressions by leaving a comment on this post below.

[Image: Geno's Steaks at dusk, Philadelphia, PA, by Bobak Ha'Eri, April 19, 2007]

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     I've written here previously about the need for all constituents at a financially challenged hospital to collaborate towards a mutually positive solution, and to seize the moment of opportunity that arises once it is clear that the status quo cannot be sustained.  Waiting for a financially strapped state government like New Jersey's for help may result in others seizing control, but will not likely fix the underlying problems.

     It was great to read last week that Raritan Bay Medical Center, a two hospital system with an older and larger facility in Perth Amboy and a newer, smaller complex in suburban Old Bridge, was planning to meet with potential buyers of the Old Bridge facility to secure a cash infusion for the struggling Perth Amboy hospital.  I was born in Perth Amboy Hospital in 1953.  No, this is not me below, but the scene probably looked much like this back then.

     Writing in the Star Ledger online edition, Tom Haydon reports that employees at the two hospitals were informed of the possible sale last month, and that local and state political figures were fully behind the move.  The sale would consolidate Raritan Bay's operations at the Perth Amboy facility, where Raritan Bay serves a large number of uninsured patients, while permitting the Old Bridge facility to continue operating with minimal disruption to its employees and community. 

     It remains to be seen whether the proposed sale will occur and have a lasting corrective effect on Raritan Bay's financial challenges.  However, it is refreshing and encouraging to see the governing board and management of a hospital having the foresight and will to act, while they still have options, to remain true to their view of their hospital's mission.

[Image: Two nurses with baby in nursery, Toronto, Ontario, circa 1955, by Canadian Nurses Assoc.]

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          [Image: "Trenton Makes -  The World Takes," by Bob Jagendorf, July 4, 2005]

       Although this blog aims to cover "the intersection of alternative dispute resolution and healthcare law," it tends to focus on the ADR side of the street.  Permit me to briefly divert from that course to promote tomorrow night's program of the Health & Hospital Law Section of the New Jersey State Bar Association on the "new" New Jersey False Claims Act.  The program will be held at the NJSBA's Law Center in New Brunswick, with dinner starting at 6:00 p.m. (Thursday, September 25th).

       Entitled "New Jersey False Claims Act: Risk for Providers; Opportunities for Whistleblowers," the program will feature Assistant Attorney General John Krayniak, who heads New Jersey's Medicaid fraud prosecution section, Marc Raspanti, a noted whistleblower's attorney, and Linda Eynon, in-house counsel for Horizon New Jersey Health, a Medicaid/NJ Family Care managed care organization.  These panelists are expected to amplify their discussion of the law with extensive lessons drawn from their personal "war stories."

       This program is a must for healthcare lawyers practicing in New Jersey.  For those interested in the ADR angle, I plan to raise the potential use of ADR in this setting for discussion by the panelists.  It is worth noting that the AHLA is devoting an entire break-out session at their upcoming Fraud and Compliance Forum in Baltimore to "Negotiating the Resolution of Healthcare Fraud Allegations."  The aforementioned Marc Raspanti is a scheduled panelist at that session as well.  I guess I just can't resist wandering over to the ADR side of the street.

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       [Image: White Stork - welcoming the newly arrived, by Manfred Heyde, June 19, 2007]

     The dispute resolution blogosphere grew stronger recently with the launching of "Settlement Perspectives," by John DeGroote.  Let me join fellow bloggers Nancy Hudgins ("Civil Negotiation and Mediation"), Diane Levin ("Mediation Channel.com") and Christopher Annunziata ("CKA Mediation & Arbitration") in welcoming John to the dialogue.  He has already demonstrated a grasp of the settlement process and human nature that makes his blog well worth reading.  And his writing style and blog design are terrific. Along with the blogs just mentioned and those of Victoria Pynchon ("Settle It Now Negotiation Blog") and Geoff Sharp ("mediator blah...blah..."), he has become a regular read from my newsfeeder.  Last but not least, I note that John is a fellow Duke Law grad - with basketball season just around the corner, I'll be hoping for some Blue Devil inspired perspectives.

     If you negotiate and settle disputes, whether as a party, counsel or neutral, check it out!

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            [Image: "Bronze Gate" (2005) is a cor-ten steel work by sculptor Robert Morris set in the garden of the dialysis pavilion in the hospital of Pistoia, Italy.]
                                                                                                                                                                                                             For several years, I have been reading in many legal industry periodicals that "the billable hour is dead," or at the least, that alternative fee arrangements are the way of the future.  But my experience has not supported these assertions.  I thus read with interest an article by Debra Cassens Weiss in this week's online ABA Journal about an Ohio law firm's switch to success-fee billing.  In it, Stanley Chesley, name partner in Waite, Schneider, Bayles & Chesley, describes how and why his firm "recently adopted a success-fee billing method for its corporate clients."

          Chesney told the ABA Journal.com that a "success fee" can be based on several factors including:  whether the case against the defendant client is settled or dismissed: (1) within a fixed time, (2) for less than a set amount, and (3) within applicable insurance coverage.  He also points out D&O insurance often pays attorneys' fees and claims out of the same pot, creating an incentive for defendants to settle earlier than later.

          Chesney's partner, D. Michael Grodhaus, not only practices using this fee model, he blogs about it at The Alternative Fee Lawyer.  There, and in other online articles, there is discussion of real world clients and matters using alternative fee arrangements that make for interesting reading.

          As a mediator, reading Chesney's explanation of why "success fee" billing makes sense really got my attention.  As reported by the ABA Journal:

          “'Very few cases are going to trial. Corporations are spending millions of dollars in defense  costs, and [there are] huge budget issues. And at the end of the day, the cases are settled.'

          'I think many cases should be settled before summary judgment because the cost of discovery is not only the lawyer fees, it’s also the corporate executives and all the department heads' who have to spend valuable time giving depositions and assisting in discovery, he says. The days of settling on the courthouse steps are over, he says. 'All I’ve done is seize the moment.'"

          Just after reading this, I came upon a great piece in What About Clients? courtesy of Geoff Sharp in mediator blah...blah... entitled "At what price glory? The lure of ADR in a down economy."  There, Dan Hull persuasively argues that even defense counsel for well funded clients should be thinking beyond merely "winning"  their cases.  As he puts it, "[f]or the experienced client, the cost of the lawsuit is part of the 'victory' analysis...The trick now is to win cheap* (*GCs would rather have 'no lawsuit' than a great case or defense)."

          The solution, according to Hull, is ADR: "A good arbitration panel or mediator will cut to the quality of the suit and its likelihood of success quicker than even the best American judges, who often feel obligated to give bad and iffy cases a wide berth."

          This is where "success fees" come in.  Although every lawyer I talk to agrees that prolonging litigation for the sake of bigger fees is both unethical and bad for business in the long run, it  cannot be  ignored that lawyers paid on an hourly basis make less from a case that settles early than they do on a protracted litigation.  This combines with the prevailing belief that good legal representation requires that "no stone be left unturned" to create a powerful force against the early and frequent use of ADR.

          Healthcare industry observers  will recognize that very similar circumstances exist with respect to physician payment systems,  which appear to be moving from a "fee for service" to a "pay for performance" model.  For lawyers, "success fees" are a form of "pay for performance."  They permit the lawyer to focus entirely on what is really best for the client, including containment of the client's legal fees, and to choose ADR when it will serve those interests.  For many lawyers,  this would mean greater and better use of ADR.

          Less can be more, for both the client and counsel.

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          I just read an excellent post by Jeff Goldsmith in The Health Care Blog entitled "Health care is not recession proof." In it, he debunks the "conventional wisdom" that health care is "recession proof" because "people get sick regardless of economic cycles, and the publicly funded safety net programs insure that people who need care get it."

          I will not attempt to restate his entire argument (or some of the interesting comments of others), but I can't help but notice the coincidence of his central theory with current events here in New Jersey. As he explains it,

          "[t]he reality is that health care has never been recession proof. It is simply that the system is so immense that lag effects in changed health care payment conceal the cyclicality. Recessions shrink tax revenue growth, and since Medicare and Medicaid are the balancing items in state and federal budgets, Medicaid and Medicare constrict payments a predictable 18-24 months after revenue problems surface."
         

[Image: Maximum recession of tsunami waters at Kata Noi Beach, Phuket, Thailand, before the third, and strongest tsunami wave, by User: PHG, December 26, 2004 ]
         
         
          Goldsmith's post appeared shortly before the New Jersey legislature's apparent resolution of the State's July 1 fiscal year budget, in which New Jersey's hospitals collectively will receive about $111 million less in charity care funding to cover their statutorily mandated service to all patients regardless of ability to pay, a mandate that already left hospitals well short of covering their costs at the former funding level. Thus, in New Jersey, hospitals get not only the cyclical effect of lower Medicare and Medicaid payments described by Goldsmith, but a decrease in charity care payments that is similarly driven by the State's budgetary shortfalls unrelated to healthcare.

          As Goldsmith says to the healthcare industry in closing, "Welcome to the real world!"  Better yet, for those running this state's beleaguered hospitals, "Welcome to New Jersey!"

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          The current issue of in Re: Magazine, the special supplement to the weekly newspaper, New Jersey Lawyer, is dedicated to healthcare law and is online now.

        

          In addition to an article by yours truly entitled Alternative Dispute Resolution In The Healthcare Industry, topics covered include:

- Nuances Of Purchasing  A Medical Practice, by Peter A. Greenbaum;

- The Next Wave Of Healthcare Fraud Enforcement In New Jersey, by Mark S. Olinsky and Gary W. Herschman;

- Answering Malpractice Insurance Questionnaires, by Christopher R. Barbrack;

- Medicaid Beneficiaries' Rights Not To be Evicted From Nursing Homes, by William P. Isele; and,

- New IRS Form 990 And Transparency For Nonprofit Boards, by Todd C. Brower and Isai Senthil.

[Image: Newspaper Rock, by Jon Sullivan, February 15, 2004]

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          [Image: a conductor's bag with a money changer, by LosHawlos, June 17, 2005]


          Most mediators are attracted to the field by a belief in the effectiveness of interest based negotiation and the power that it holds for resolving disputes through mediation.  As most clearly articulated by Roger Fisher and William Ury in Getting To Yes, and embodied in our modern business lexicon as the "win-win solution,"  the search for resolutions that creatively address the parties' true interests is the essence of today's mediation training and practice.  It is thus with great reluctance that many mediators confront and respond to the notion that some disputes really are about money, and nothing but money.

          Attorney and mediator J. Anderson ("Andy") Little, author of the book Making Money Talk: How to Mediate Insured Claims and Other Monetary Disputes, urges mediators not to cringe at the thought of mediating a purely monetary dispute.  As he sees it, mediators who limit their role in such cases to that of a messenger between the parties are selling themselves short, and doing the parties a disservice.  Having read Mr. Little's book, I was even more persuaded by his presentation at the ABA Section of Dispute Resolution Spring Conference in Seattle entitled "Negotiating By The Numbers." 

          Before getting into what mediators can do in such cases, let me say that  Mr. Little does not accept the premise of many attorneys coming into mediation that every case is only about money.  Although I hear this from one of the attorneys at some point in almost every mediation, it is not usually true.  In most healthcare disputes that are ripe for mediation, the parties have interests at stake other than money, or which cannot easily be reduced to a specific dollar demand.  It usually takes some time and effort to uncover or get the parties to value their non-monetary interests, but they are there nonetheless.

          Assuming the parties really have no interest at stake other than how much money one of them will have to push across the table to the other, the mediator can still play a vital role in the process.  Making Money Talk explains these concepts much more fully and eloquently, but as a mediator, my "take aways" from Mr. Little's presentation were as follows:

1- If you have a "money only" case, embrace your role, and work as hard at the mediation process as you would in the most complex interest-based scenario.

2- Be prepared to use "reality testing" and other "evaluative" techniques to help each party and their counsel to get on the same page, and to enable the formulation of effective offers and counter-offers.

3- Be aware of the effect that particular monetary offers and counter-offers can have on the negotiation process, and coach the parties to formulate and time their offers to send the signals that they really intend the other party to receive.

4- Every "money only" mediation has two parts, the first to get the parties to their "best numbers,"  and the second to close the distance between their "best numbers."  How well the mediator performs tasks 1, 2 and 3 above will determine whether and when the parties get to the point that they need only close the final gap.

          Andy Little's ideas filled a void in my mediator's toolbox.  It caused me to rethink the "money only" case.  Ironically, I also realized that when used in combination with more traditional mediation concepts, the art of helping to move money across the table can help settle almost any case.

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          [Image: Top view of the two-headed Boa Island Janus figure, County Fermanagh, Northern Ireland, by Kenneth Allen, May 22, 2006]


          Last night I attended a joint meeting of the New Jersey State Bar Association's Dispute Resolution Section and the New Jersey Association of Professional Mediators, at which a presentation and discussion took place concerning the dispute resolution process in which the neutral serves as both a mediator and an arbitrator in the same case - commonly referred to as "med-arb" or "arb-med," depending on the primary process for which the neutral is engaged.  The speakers, Patrick Westerkamp and Sally Steinberg-Brent, entitled their presentation "Mediation and Arbitration, Like Oil and Water?"  They approached the topic in the context of labor arbitrations, including an interesting historical review, and offered examples of how an experienced and trusted labor arbitrator could utilize mediation techniques to settle certain cases with the parties' consent.

          Against this backdrop, the diverse audience of ADR providers in attendance jumped in with spirited discussion of how and why med-arb could (or could never) work in their practices.  Among the strongest objections to the concept were voiced by the family law mediators in attendance, who saw the judgmental role of arbitrator as antithetical to their mediation practices.  Others focused on some practical problems with med-arb: How does the arbitrator maintain objectivity and neutrality after hearing confidential information from the parties in mediation?  What happens if mediation settles some but not all of the issues, and the remaining issues cannot be fairly arbitrated without reopening the settlement?  Are med-arb and arb-med permitted by applicable statutes, codes of ethics and rules of practice?  Time ran out before these issues could be fully explored, but a consensus seemed to emerge that med-arb can be a very helpful tool if used carefully and in appropriate circumstances. 

          In my view, for purposes of resolving common business disputes arising in the healthcare industry, the greatest utility exists in a process that might more accurately be described by the oxymoronic term "binding mediation."  Specifically, after making considerable progress but reaching an impasse, a mediator can, at the request of the parties, offer a "mediator's proposal."  The object of such a proposal is to state the mediator's sense of a fair allocation of the remaining ground between the parties, and not an opinion of how the entire conflict would be resolved in court.  The parties are then presented with this proposal in separate sessions and asked to accept or reject it.  Only if both parties accept it does the mediator reveal their decisions and settle the case.  Otherwise, the mediation is concluded without settlement.

          "Binding mediation" takes this process one step further.  At the point where the parties request a "mediator's proposal,"  they also may agree that they will accept the mediator's proposal as a binding decision.  Again, the mediator does not then offer an arbitral award in the traditional sense, but a solution that equitably resolves the remaining issues in the case, taking into account the prior course of negotiation and scope of available solutions at the time of impasse.  This is, I think, the kind of "med-arb" that  parties at impasse may want from a mediator in whom they have confidence when they cannot bear to leave the mediation without settlement.

          Among other things I learned from many of the courses and discussions I participated in at last week's annual meeting of the ABA Dispute Resolution Section in Seattle, the future of ADR lies in tailoring the process to suit the needs of the parties.  Call it "med-arb," "binding mediation" or something else, it is here to stay.

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 [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: "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: 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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          [Image: The center third of "Education" (1890), a stained glass window by Charles Louis Tiffany and Tiffany Studios, located in Linsley-Chittenden Hall at Yale University.  It depicts Science (personified by Devotion, Labor, Truth, Research and Intuition).]




          Writing in the online ABA Journal, Debra Cassens Weiss picks up on a fascinating story from the Legal Blog Watch by Robert J. Ambrogi on an upcoming Cornell Law Review article called "Blinking on the Bench: How Judges Decide Cases."  The article, written by Chris Guthrie of Vanderbilt Law School, Jeffrey J. Rachlinski of Cornell Law School and U.S. Magistrate Judge Andrew J. Wistrich of the Central District of California, analyzes how trial judges make decisions.
  
          Their thesis rests on the dichotomy between  "deliberative" and "intuitive"  decision-making  processes.  Their conclusion? As quoted by Robert Ambrogi, trial judges "are predominantly intuitive decision makers, and intuitive judgments are often flawed," with the result that "millions of litigants each year might be adversely affected by judicial overreliance on intuition."

          The complete article thoroughly describes the characteristics, advantages and disadvantages of deliberative decision making and intuitive decision making, and then explains the testing done by the authors on 295 Florida trial court judges that forms the basis for their conclusions.  Among those tests were the following questions (try all three before checking the answers at the end of this post, below):

          1- A bat and a ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost?

          2- If it takes five machines five minutes to make five widgets, how long would it take 100 machines to make 100 widgets?

          3- In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half of the lake?

          According to the authors, nearly one-third of the judges failed to answer a single question correctly; nearly one-third of them answered only one question correctly; about one-quarter of them answered  two questions correctly; and roughly one in seven answered all three questions correctly.  How did you do?

          Although the judges' scores were comparable to those of other well educated adults, they illustrate the authors' point: while intuition is quicker and often "feels right," it cannot substitute for a careful deliberative process in reaching just and accurate decisions.

          So what does all this have to do with alternative dispute resolution?  A few things occur to me:

        - The parties to a dispute heading towards litigation need to be realistic about what they an expect from the courts at the end of their case.  They typically cannot select their judge, and their judge probably has far more cases to handle than there are hours in the day - the primary reason the article's authors found for most judges' reliance on an intuitive approach.

        - Alternative dispute resolution processes, whether adjudicative (arbitration, evaluation) or facilitative (mediation, negotiation), inherently permit and encourage a more deliberative approach than a trial court's decision.  Time, attention (and sometimes expertise) are brought to bear on the dispute as needed. 

        - The process of "reality testing" that is a major part of most mediations results in the parties and counsel having to confront the intuitive but unsound aspects of their case, and then reshape it accordingly, while there is still time for a fair settlement.

          Of course, some parties may want an "intuitive" decision-maker, and may be convinced that the prospect of a favorable result in that forum far outweighs the risk of a less than perfect decision.  They may even be correct.  But that is just another factor in the mix of issues and interests to be sorted out.


Answers to the questions above:
1- The correct answer is 5 cents, not 10 cents.
2- The correct answer is five minutes, not 100 minutes.
3- The correct answer is 47 days, not 24 days.

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          [Image: Auctioneer and assistants, Cheviot, Ohio, 2004, by Rick Dikeman]
     

         Less than three months ago, I wrote here (with reference to Boston's Carney Hospital) about the need for financially distressed hospitals to involve all stakeholders in a collaborative process in order to achieve the best overall result.  Now I see that two New Jersey hospitals have long since passed that moment of opportunity and find themselves up for auction in bankruptcy proceedings.  Yesterday, The Record reported that auctions were set for Pascack Valley and Barnert Hospitals.  Today, reports indicate that Barnert's fate awaits the outcome of further creditors' wrangling in the Bankruptcy Court, while one of the bidders for Pascack Valley  is seeking to delay the auction of that facility scheduled for February 4.
          It is hard to imagine that any of the "stakeholders" involved in the early days of a financially distressed hospital scenario would purposefully choose to resolve their common problem by way of an auction sale in Bankruptcy Court.  Such proceedings are intended and designed to yield the best result for the hospital's creditors.  Although the interests of other constituencies (the hospital's Board, employees, medical staff, patients and community) may be brought into play, the creditors (and more precisely, certain creditors) are driving the bus.  This is not inappropriate given the underlying purpose of the Bankruptcy Code to fairly allocate the debtor's assets among its creditors.  But it makes no sense for these other constituencies to get on this bus if they have any choice in the matter.
          They often do have that choice, but fail to seize the opportunity.  It occurs well before the "B" word is first openly discussed, but when leadership of the hospital knows (or should know) that the status quo cannot be maintained.  Once that moment passes, the options available to the stakeholders begin to diminish, little by little, until one day there is no choice but to close the doors and hold an auction.
          The recently released Final Report 2008 of the New Jersey Commission on Rationalizing Health Care Resources (a/k/a the "Reinhardt Commission Report") addressed this problem to some extent by recommending (at Chapter 15, page 181) that state regulators create an "Early Warning System" to monitor and detect negative financial trends, and "to intervene at the level of hospital governance and management in a graduated fashion based on severity of financial problems and responsiveness of management."  Although a laudable effort, my guess is that this process will in many cases come too late, and when it does, will put state regulators in the driver's seat. 
          The hospital's stakeholders need to do better.  They can, but only through exercise of  leadership that acknowledges the realities of the hospital's predicament, and moves beyond pointing fingers and posturing into a collaborative process to find a solution.

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          [Image: Confusion of Tongues, illustration by Gustave Dore (1832-1883)]


          In a decision filed November 20, 2007, Judge Robert P. Contillo, sitting in the Superior Court, Chancery Division, Bergen County, decided cross-motions for summary judgment filed by all parties in Joseph Garcia, M.D., et al v. Healthnet of New Jersey, Inc. v. Wayne Surgical Center, LLC, et al (the "Wayne Surgical Center" case).  In a very thorough, 31 page opinion, the Court disposed of numerous claims by all parties on a variety of legal theories, all of which revolved around the propriety of the billing of Healthnet's insured patients for same day surgery services provided at the Wayne Surgical Center by otherwise unrelated surgeons who owned investment interests in that surgi-center.  Although the resolution of all of the issues was interesting and important, one aspect of the decision potentially throws into confusion the legality of physician ownership of many facilities in New Jersey to which the investor physicians make referrals.
          In addition to the federal anti-kickback and Stark Law restrictions on investments by referring physicians, those practicing in New Jersey are subject to a state statute, N.J.S.A. 45:9-22.4 et seq. (commonly known as "the Cody Act"), which generally prohibits all referrals to a health care service (other than certain named modalities) in which the physician has a significant beneficial interest.  Notwithstanding the apparently clear language of the Codey Act, the prevailing wisdom in New Jersey's healthcare community for some time has been that there is an implied exception for referrals by physicians to facilities at which the referring physician would perform the required professional service - a so called "extension of practice" exception.  This view gained support in the form of an advisory opinion issued by the New Jersey Board of Medical Examiners (the agency charged with enforcing the Codey Act's restriction on medical practice) which seemed to endorse the notion of an exception for self-referrals.  It also gained support from the presumption that ownership arrangements permitted by federal law should not, as a practical matter, have much enforcement risk under state law.
          After distinguishing the NJ BME's advisory opinion and questioning its authority to alter statutory mandates, the Court in Wayne Surgical Center made it clear that the Codey Act prohibits all referrals by physicians to surgical centers in which they hold an investment interest.  Although the Court found that the investor physicians in this case reasonably believed their referrals were proper at the time (based on the prevailing industry view), and thus dismissed Healthnet's claims of billing fraud, the  unstated conclusion of the opinion seems to be that all future referrals by the physician -owners of Wayne Surgical Center may risk exposure to such claims (that is, that the Court's decision effectively puts them "on notice").  Presumably, the same could be said of any other physician-investor at another New Jersey facility who has notice of this Court's decision.  Although it is only a trial court opinion, and is subject to appeal, it appears to me that the Court's reasoning in the Wayne Surgical Center opinion will be difficult to escape.
          Rumors abound about the fallout from this decision.  Are all physician-owners' referrals at risk immediately?  Are hospital-physician joint ventures at risk, or do they remain protected by the NJ BME advisory opinion (which the Court distinguished, in part, based on hospital involvement in that situation)?  Will emergency legislation be passed to "correct" this result?  Can anything be done by the NJ BME?  Does the Wayne Surgical Center opinion constitute the kind of event that triggers a "regulatory jeopardy" provision in existing deal documents?  Time (and I think not much time) will tell.
          Meanwhile, Congressman Pete Stark recently told David Whelan, as reported in Forbes.com, that he regrets having written the law that commonly bears his name.  I first saw mention of this in Robert Laszewski's post in the Health Care Policy and Marketplace Review, and just had to read it.  Apparently, Congressman Stark now recognizes that he has created a Byzantine morass of laws, regulations and advisories, but seems surprised that healthcare providers and their lawyers have been working hard to do business while complying with the law, calling such efforts the pursuit of "loopholes".  Don't expect much relief from the Stark law anytime soon.
          Confusion brings uncertainty - but with it opportunity.  Stay tuned.                

         

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          [Image: Douglas Fairbanks as Robin Hood; a screenshot from the 1922 United artists film Robin Hood.]

          Writing in the ABA Journal Law News Now, Debra Cassens Weiss alerted me to an article in today's New York Times about the practice of judges becoming "Robin Hoods With Extra Settlement Money."  Adam Liptak describes in "Doling Out Other People's Money" what often happens when class action settlements conclude with settlement funds going unclaimed.   It  appears that many judges presiding over class action settlements  have adopted the practice of awarding such "left over" funds to charities that carry out some purpose deemed consistent with the objective of the settlement.  Often, although these charities carry out good works, their connection to the  subject  matter of the case is tenuous at best.
          The notion that the cy pres doctrine supports such redistribution of funds is a stretch.  It would be far more consistent with that doctrine to pay the "extra" funds to those plaintiffs who did sign on for the settlement, at least up to the amount of their legitimate damages.  Alternatively the funds could be placed in trust for the benefit of similarly injured parties who have not been identified.  Of course, the funds also could be returned to the defendants who paid them.
          Maybe I am missing something (class action counsel jump in here), but why are these issues being left to a judge to decide?  The likelihood of residual funds being available at the end of a settlement should not be a surprise to the parties at the time a class action settlement is reached.  The disposition of such funds can and should be negotiated and settled by the parties in advance.  Essentially, the funds paid by the defendant in settlement should never become "excess" or "left over" in the first place, but simply directed by agreement to contingent beneficiaries.  The disposition of these potential funds can provide another item of value to be accounted for in structuring class action settlements, thus permitting greater flexibility and potential for a settlement to be reached.

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            [Image:  Photo of Poker Table at the 2004 World Poker Tour 5 Diamond Bellagio by        
            flipchip/LasVegasVegas.com]


           As reported by Debra Cassens Weiss in the ABA Journal, a front page story in today's Wall Street Journal highlights the growing importance of accounting for subrogation claims of healthcare payers when resolving personal injury disputes.  The WSJ article recounts the very sad story of Deborah Shank, a former Wal-Mart employee who was permanently brain damaged in a non-work  accident.  Wal-Mart's health plan paid $470,000 towards her medical expenses, but after the Shank family settled its underlying tort claim against an unrelated trucking company,  Wal-Mart sued the Shanks to recover the medical expenses that had been paid by Wal-Mart, citing a subrogation provision in the Wal-Mart health plan.  So far, two courts have upheld Wal-Mart's claim.

          The tragic circumstances of the Shank family and the huge economic disparity between the parties' drive the focus of the WSJ article and subsequent commentary in the WSJ Health Blog following a post by Joe Mantone.

          Leaving aside the moral debate that naturally arises on these facts, there is a lesson here for neutrals and all counsel involved in resolving disputes that include the payment of significant healthcare expenses by someone.  It is risky business to fail to account for all interested players, including the healthcare payers who may be well behind the curtain when a settlement is being crafted.  (This is not to say that a better result could have been obtained for the Shanks - the limits of the defendants' insurance and Wal-Mart's approach to settlement may have made the outcome unavoidable.)

          What Joe Mantone calls "a cottage industry of auditing firms" is helping payers to recoup what they estimate is between 1% and 3% of healthcare spending - big numbers by any standard.  And the fact that a company like Wal-Mart would take on the public relations cost of pursuing its claim against the Shanks tells you that big business is prepared to make the pursuit of healthcare expense subrogation a standard operating procedure. 

          Other topics spring to mind, some of which may be resolved by state law but some are not.  Can the settlement be lawfully structured to minimize the injured party's subrogation exposure?  Does it matter if the healthcare payer participates?  Has notice?  What is the neutral's role and ethical obligation in this regard?  

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          [Image: You talking to me? Photo by Ped Xing, Austin, Texas, 2005]


          Writing in his HealthBlawg, David Harlow tells the tale of Boston's financially distressed Carney Hospital and asks the question: When do you pull the plug on a hospital?  The story is one that has already played out at several other hospitals in the northeast over the last year, and which looms at many others.  Recounting a story and an editorial appearing in the Boston Globe, Mr. Harlow's account captures the familiar push and pull between the major "stakeholders" in these cases: the governing board (or owner) of the facility, the state regulatory authorities, the city in which the hospital is located, the financing agency or bondholders of the facility's debt, and the facility's rank and file employees (or their union). 

          These parties may, in fact, be holding productive talks, but more likely remain engaged in "a lot of wishful thinking."  So, as Mr. Harlow asks, what is to be done?

          If Carney is like most distressed hospitals, the stakeholders are approaching their  predicaments with the assistance of good legal counsel, each focused on protecting them against their respective "worst case" scenarios.  There is no lawsuit or other articulated conflict uniting the stakeholders in a common discussion, much less a common dispute to be resolved.  Thus, whatever "talking" there is takes place between only two of the stakeholders at a time and tends to be of the "doomsday" variety.  This approach ignores the fact that each stakeholder is very unlikely to achieve its "best case" scenario by unilaterally imposing it on the others, and that each stakeholder acting unilaterally will probably obtain a worse result than it would if all of them pooled their interests in a common discussion.

          David Harlow suggests one such collaborative outcome, and mentions another offered by Paul Levy in Running A Hospital.  I don't know whether their solutions would work.  My point is that all of the stakeholders need to talk with each other if the best alternative for all is to emerge.  The services of a neutral, whether called a mediator, negotiator, or facilitator, would greatly improve the chances for that best alternative to occur.  By focusing on that end result, and facilitating a collaborative process, the neutral would supply the catalyst needed for the stakeholders to achieve what they currently cannot see.  Surely in the nearby hotbed of dispute resolution there are a number of highly qualified candidates for that role.  It would be time, money and energy well spent.

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         [Image: Omaha jazz great Lewis "Luigi" Waites plays the vibraphone during a tribute to Duke Ellington, July 29, 1999, Photo by Jim Williams, for "Joselyn Art Museum: Jazz on the Green," a Nebraska Local Legacies project]




         I just heard from Debra Gerardi, Chair of the Program on Healthcare Collaboration and Conflict Resolution at the Werner Institute for Negotiation and Dispute Resolution at Creighton University.  Debra alerted me to an upcoming program at the Werner Institute that should be considered by anyone interested in healthcare dispute resolution.  Creating Cultures of Engagement in Health Care - International Conference and Dialogue: New Models for Addressing Conflict, Disruption and Avoidance in Health Care, will be held at Creighton in Omaha on June 3-5, 2008.

        As stated in the program description on the Werner Institute's website, the purpose of the conference is to provide participants with an opportunity to:

1. Learn how to apply principles and practices from the field of dispute resolution to upcoming mandates for change including the new 2009 JCAHO leadership standards related to disruptive behavior and conflict management;
2. Learn the principles guiding conflict resolution practice in health care including the essential components for conflict management training programs;
3. Working with experts in health care mediation, negotiation and collaborative law, create an action plan for advancing the outcomes of the conference dialogues and create an ongoing community of experts.

       A description of the Conference's Premises makes it clear that the Werner Institute is on the mark with this program in matching a discussion of conflict resolution theory with an examination of the current culture of healthcare delivery.  And you can check out Luigi while you're there.

       Thanks again, Debra! 

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[Image: Karma. Illustration taken from "Ten Questions people ask About Hinduism...and ten terrific answers!"]

          I checked my newsreader tonight only to find my own picture - looking back at me from the Settle It Now Negotiation Blog.  Victoria Pynchon, commercial mediator and accomplished blogger, graciously welcomed me to the ADR blogging neighborhood with a reminder to me and her readers of the many ADR bloggers who have been moving the discussion of this topic forward for some time.  I am very grateful to be included in this dialogue, and hope I can contribute my fair share.

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           [Image: Cliffs of Moher, Ireland, Photo by Tobias Helfrich, March 27, 2004]


          The range of conflicts arising within the healthcare industry that could benefit from the application of an alternative dispute resolution process is as broad as one’s imagination.  This is a partial list of the circumstances in which conflicts can arise and ADR can be used effectively.

• Contracts between hospitals, physicians and other providers for professional services  (conflicts arising in their formation, operation, renewal or termination)

• Contracts with vendors (conflicts arising in their formation, operation, renewal or termination)

• Joint venture agreements (conflicts arising in their formation, operation or termination)

• Medical staff relations (conflicts arising in interpretation or amendment of bylaws, inter-department issues or clinical policies)

• Medical staff privileges (conflicts arising in individual applications or disciplinary matters)

• Managed care agreements (conflicts arising in their formation, operation, renewal or termination)

• Disposition of financially distressed facilities (conflicts involving creditors, government regulators, staff and community)

• Inter-institutional affiliations, mergers and acquisitions (conflicts arising in their formation, operation or termination)

• Physician practice acquisitions (conflicts arising in their negotiation or unwinding)

• Governance matters (intra-corporate board conflicts, including conflicts concerning management  performance or bylaws revisions)

• Patient relations (conflicts arising in consent to treatment, quality of care, medical errors, billing and collection matters)

• Governmental regulation (conflicts arising in licensing, compliance or enforcement matters)

• Employment issues (conflicts arising in employee discipline or termination)

• Professional practices (conflicts arising in their formation, entry of new partners, withdrawal of partners, retirement or dissolution)

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          Alternative dispute resolution (or “ADR”) is increasingly being used to resolve conflicts arising in all facets of society.  The chief benefits of ADR (cost savings, faster results, confidentiality, and the parties’ control of the process) have been well established.  ADR is particularly appropriate for use in the healthcare industry for several additional reasons, the first of which is described today:


[Image: Table 10 from Gilbert Beckett, A Comic History of Rome  c. 1850, Cicero denouncing Cataline]


Reason #1. 

          The parties to a healthcare dispute often have some interest in (or need for) a continuing relationship after the current dispute is resolved.  By its nature, traditional litigation is an adversarial and combative process.  The objective of each party’s counsel is to crush the other party’s case, and in the process, the other party is often hurt as well (if not destroyed).  In contrast, although ADR involves advocacy of both sides of the conflict, the parties have jointly committed to a process of their choosing to reach a fair result that both will accept.  The likelihood of a viable relationship after resolution of the dispute is thus vastly improved.

          Examples of this advantage of ADR could occur with respect to the relationships between a hospital and members of its medical staff; partners to a healthcare joint venture; members of a professional practice; health providers and their patients; and health insurers and health providers. Because the need for healthcare services continues to grow, and there are a limited number of established participants in the delivery of (and payment for) those services, there is a significant incentive in many disputes for both parties to put their conflict behind them.

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[Image: Musher Thomas Knolmayer at the Willow, Alaska start point of the 2005 Iditarod sled dog race, Photo by Tech. Sgt. Keith Brown]


          With this post, I start my first blog and what I think is the only blog site devoted to the topic of alternative dispute resolution in the healthcare industry.   As stated above on the masthead, I intend to blog at the intersection of ADR and healthcare law.  Both of these topics are well covered separately elsewhere (see links and blogs in sidebar), and I will try not to duplicate those efforts. 

          To make this site most useful, and to bring some order to my thoughts, I am dividing the world of ADR For The Healthcare Industry into topics that make sense to consider separately.  In alphabetical order, this blog will discuss alternative dispute resolution in the context of:

Commercial Healthcare Disputes

End of Life and Treatment Decisions

Healthcare Arbitration

Healthcare Mediation

Healthcare Regulatory Actions

Hospitals, Physicians and Medical Staffs

Managed Care Payment and Coverage Issues

Medical Malpractice Claims

These topics will overlap, and undoubtedly will subdivide and recombine over time.  But this is where I will start.  Let me know what you think.

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