VOLUNTARY HEALTH PLAN ARBITRATION ACT
A suggested draft
Health Administration Responsibility Project, Inc.
SECTION 1. The Legislature finds as follows:
Arbitration in claims against health care service plans (HCSPs) by their enrollees is not an “alternative neutral forum” to an action in a court of law.
(a) Arbitrators are more likely to be biased toward the defense.
(1) The requirement that both parties agree on a 'neutral' arbitrator is equivalent to unlimited peremptory challenges by each party.
(2) These peremptory challenges are more beneficial to the defendant than to the plaintiff.
(3) Defendants arbitrate much more frequently than plaintiffs, so can maintain a dossier on arbitrators.
(4) Use of unlimited peremptory challenges allows defendants to blackball arbitrators who find for plaintiffs.
(5) Many arbitrators depend on repeat business for a significant portion of their income.
(6) The threat of being blackballed by a frequent user of arbitration represents a significant conflict of interest for an arbitrator, and an incentive to benefit defendants.
(7) A judge's or jury member's income can not be affected by his decision. An arbitrator's can. Thus arbitration, as applied, is not as neutral as a trial.
(8) Plaintiffs are less able to benefit from challenges, because of lack of past experience with arbitrators, and lack of the promise of future business.
(b) Procedurally, arbitration is not as "neutral" a forum as a court trial, as applied to health care service plan disputes.
(1) Lack of discovery disadvantages the patient disproportionately. The managed care organization is much more likely to have material information unknown to plaintiff than vice versa.
(2) Without judicial control, HCSPs can drag out the proceedings to patient's detriment, as in Engalla v. Permanente.
(3) A frequent arbitrator, inured to malpractice, is less likely to reflect community sensibilities to the same degree as a jury of representative citizens.
(4) Arbitration actually results in lower awards than trials, on average
(5) It is precisely this non-neutrality which is the reason that HCSPs push so aggressively for arbitration and patients resist it.
(c) Arbitration may not decrease conflict in the long run.
(1) Decisions are not reported and are not binding, so the same issues may be arbitrated again and again in the absence of binding precedent.
(2) Injunctions, which might prevent repetitive malpractice, are unavailable to arbitrators as remedies.
(3) The lower awards typically given by arbitrators are less likely to discourage repetitive malpractice.
(d) Self-serving "agents" should not waive constitutional rights of their "principals" without explicit authorization.
(1) The employer as "agent" of the employee is a legal fiction.
(2) Employers consent to waive employee's right to trial in order to lower their own insurance costs, a clear conflict of interest.
(3) This breaches the agent's fiduciary duty to act solely in the best interest of the principal.
(4) Employees should not be bound by these unconsented-to actions of their "agent".
(5) Waiver of constitutional guarantees is not a 'usual and proper' function of an agent. If allowed at all it should require explicit authorization by the principal.
(e) A judicial bias toward arbitration may breed injustice.
(1) Judges gain personal advantage from arbitration.
(2) When salaried, their workload is eased by diverting cases out of the judicial system.
(3) They may look forward to a comfortable retirement, funded by acting as private arbitrators.
(4) It is therefore to their financial benefit to insure a steady stream of cases to arbitration, in spite of the clearcut detriments to plaintiffs outlined above.
(f) The higher costs of mandatory arbitration compared with court trials are not "neutral" as applied to health plan enrollees.
(1) Plaintiffs are denied equal protection of the laws if they are denied a hearing due to inability to pay the higher costs of arbitration, as opposed to a jury or court trial.
(A) To obtain an arbitration hearing plaintiffs must often advance the costs of arbitration administration and arbitrators' compensation.
(B) The plaintiff's share of arbitration administration and compensation of a three arbitrator panel may be in the range of $10,000 to $20,000.
(C) The comparable cost to file a complaint in the California Superior Court is less than $200, plus jury fees and court reporter fees if the case goes to trial.
(D) Many if not most plaintiffs cannot afford to advance $10,000-$20,000 in arbitration costs.
(E) Presumably, the ability of attorneys to advance arbitration costs is limited, thereby reducing plaintiff's ability to obtain legal representation.
(F) A forum that is economically inaccessible to many if not most plaintiffs is de facto biased in favor of defendant insurance companies that are not required to stand and defend their actions against claims that cannot be brought against them.
(G) Plaintiffs who cannot afford to pay are denied an alternative forum, i.e., an affordable judge and jury.
(2) There is nothing in the current statutory notices putting plaintiffs on notice of the higher costs of arbitration as opposed to jury or court trial.
(3) Alternative insurance products allowing plaintiffs to bring suit in court are generally unavailable.
(g) Secrecy of arbitration proceedings inhibits regulatory oversight.
(1) The Department of Managed Health Care requires information on the nature and resolution of patient disputes in order to carry out its regulatory functions.
(2) This information is available when the disputes are resolved by lawsuit, and must be no less available when they are resolved by arbitration.
(3) Since written arbitration decisions are generally less comprehensive than those of lawsuits, and since arbitrators are not required to follow the law, as judges are, the department must be able to review arbitrated disputes de novo for regulatory issues which may not have been addressed by the arbitrator.
(h) Increased Due Process should be given, especially to tort victims forced into mandatory arbitration by adhesionary contracts.
(1) The drafter of the adhesion contract must bear all costs beyond those of a judicial trial.
(2) Random assignment of arbitrators without peremptory challenge is necessary to offset possibility of reemployment bias.
(3) Plaintiffs must be allowed discovery against the HCSP.
(4) Venue must be the same as it would be in a trial court.
(5) Breach of the arbitration rules or time limits by the HCSP should be grounds for setting aside the arbitration agreement and proceeding to trial.
(6) Appeal should be allowed. Arbitrators are certainly not less likely to commit error than judges.
(7) These rights should be waivable only in voluntary arbitration, freely bargained for between parties of equal bargaining power.
SECTION 2 [Arbitration may not be mandatory]
(a) Health and Safety Code Section 1363.1 is amended to read as follows:
(a) No health care service plan may require mandatory binding arbitration as a condition of plan membership.
(b) Any health care service plan that allows enrollees to opt for mandatory binding arbitration to settle disputes, or to waive their right to a jury trial, must include, in clear and understandable language, a disclosure that meets all of the following conditions:
(c) The disclosure must clearly state that choosing arbitration is optional, and that full coverage will be provided even if the enrollee does not choose arbitration.
(d) The plan may offer financial incentives, such as premium discounts or lower deductibles or co-payments, for enrollees who do choose mandatory arbitration.
(e) The disclosure must clearly state whether the binding arbitration is used to settle claims of medical malpractice, coverage and/or utilization review disputes.
(f) The disclosure must appear as a separate article in the agreement issued to the employer group or individual subscriber and must be prominently displayed on the enrollment form signed by each subscriber or enrollee.
(g) The disclosure must clearly state that signing is optional, and for which types of disputes the subscriber or enrollee is waiving his or her right to a jury trial, and must be substantially expressed in the wording provided in subdivision (a) of Section 1295 of the Code of Civil Procedure.
(h) The mandatory arbitration agreement may not be signed, nor the enrollee bound, by the representative of the group contracting with a health care service plan, nor by an agent of an employer, but must be individually signed by the individual enrollee, or in appropriate cases, by his parent, guardian, or conservator. The disclosure required by this section must be displayed immediately before the signature line provided for the individual enrollee.
(b) Insurance Code Section 10127.14 is added to read as follows:
(a) No health or disability insurance policy may require mandatory binding arbitration as a condition of coverage.
(b) Any such insurance policy that allows potential insureds to opt for mandatory binding arbitration to settle disputes, or to waive their right to a jury trial must include, in clear and understandable language, a disclosure that meets all of the following conditions:
(c) The disclosure must clearly state that choosing arbitration is optional, and that full coverage will be provided even if the insured does not choose arbitration.
(d) The plan may offer financial incentives, such as premium discounts or lower deductibles or co-payments, for insureds who do choose mandatory arbitration.
(e) The disclosure must clearly state what types of disputes the binding arbitration will cover.
(f) The disclosure must appear as a separate article in the agreement and must be prominently displayed on the enrollment form signed by each insured.
(g) The disclosure must clearly state that signing is optional, and for which types of disputes the insured is waiving his or her right to a jury trial, and must be substantially expressed in the wording provided in subdivision (a) of Section 1295 of the Code of Civil Procedure.
(h) The mandatory arbitration agreement may not be signed, nor the insured bound, by the representative of a group contracting with the insurer, nor by an agent of an employer, but must be individually signed by the individual insured, or in appropriate cases, by his parent, guardian, or conservator. The disclosure required by this section must be displayed immediately before the signature line provided for the insured.
SECTION 3 [Arbitration Procedures]
(a) Health and Safety Code Section 1373.19 is hereby repealed:
(b) Health and Safety Code Section 1373.20 is amended to read as follows:
(a) All disputes arbitrated after January 1, 200x, between health care service plans and their enrollees will be subject to the following rules.
(b) The Department of Managed Health Care will establish a panel of arbitrators acceptable to the Director, by January 1, 200x.
(c) When an arbitration is initiated, the health care service plan will inform the Department, which will assign, within 15 days, by a mechanical randomization procedure, one neutral arbitrator to hear the case.
(d) The Arbitrator may be challenged by the parties only for such cause as would be valid for disqualifying a judicial officer, as set forth in Section 170.1 of the Code of Civil Procedure. There will be no peremptory challenges.
(e) The health care service plan must be responsible for all arbitration expenses greater than those of a corresponding court proceeding.
(f) Discovery procedures must be made available to patients, as in court proceedings.
(g) Procedural safeguards must be provided, at least some subset of the Rules of Civil Procedure, to be determined by the Director.
(h) While the arbitrator may relax procedural rules, he must apply substantive law.
(i) Judicial appeals from the arbitrator’s decision must be available for abuse of discretion or legal error, on the same grounds as from that of a court.
(j) At the completion of the arbitration, the arbitrator must provide a written decision, naming the parties and witnesses, outlining the evidence and law relied upon, including evidence proffered but not admitted, and describing any awards, and the rationale therefor.
(k) Every health plan contract providing for mandatory arbitration must contain a clause providing that any breach of the contractual or statutory arbitration rules by the plan, or its missing any contractual arbitration time requirements by thirty days or more, shall constitute waiver of the plan’s right to enforce arbitration.
(l) The hourly fee for an arbitrator assigned by the Department pursuant to this section shall be the current annual salary of a superior court judge divided by Two Thousand (2000) plus reasonable travel expenses. No additional fee or gift may be given to any arbitrator by any party.
SECTION 4 [Reporting of decisions and settlements]
Health and Safety Code Section 1373.21 is amended to read as follows:
(a) All health plans must provide to the Director of the Department of Managed Health Care, within 30 days of completion of each case by decision or settlement, a complete report of all arbitrations and litigations with patients. These reports must indicate the names of all parties, the amount, other relevant terms, and the reasons for any award rendered, the name of the arbitrator or arbitrators, providers, health plan employees, and health facilities involved, as well as the complete written decision and a list of all evidence submitted to the arbitrator or judge, whether admitted by him or not.
(b) All documents relating to the arbitration or litigation, including but not limited to written decisions, deposition testimony, expert testimony, the record of the proceedings and all documents produced in discovery must be preserved by the plan for five years, and provided to the Director within thirty days of his written demand within that time.
(c) Under no conditions may the Director or the Department of Managed Health Care make public any enrollee or patient-identified medical information without the written consent of the enrollee or patient.
(d) Unless confidentiality is required by law, court and arbitration records are presumed to be open.
(e) Any party may seek a court order to seal the records obtained by DMHC, subject to the qualification of 2001 California Rules of Court 243.1, i.e.: only if the court expressly finds that:
(1) There exists an overriding interest that overcomes the right of public access;
(2) The overriding interest supports sealing the record;
(3) A substantial probability exists that the overriding interest
will be prejudiced if the record is not sealed;
(4) The proposed sealing is narrowly tailored; and
(5) No less restrictive means exist to achieve the overriding interest.
(f) The Department may disclose the identity of physicians involved in actions against plans, under the same conditions the Medical Board would apply, as required by Business and Professions Code §803.1.
(g) Subject to sections (c),(d),(e),and (f) above, the Director must make public, in the Department's reading room and on the Internet, all records, including discovery materials used or submitted as a basis for adjudication, relating to arbitrations, litigations or settlements.
(h) These records may be used in compiling the “report cards” required by Health and Safety Code §1368.02(c)(3)(B).