Effective Use of Mediation and Arbitration in Health Care Disputes R

Effective Use of Mediation and Arbitration in Health Care Disputes R. Wayne Thorpe, JAMS

Various dynamics at play in the health care industry and device manufacturers, pharmacies, are likely to contribute to disputes uniquely suited suppliers, etc.; for resolution through mediation and arbitration. If • Complex disputes arising from mergers the Patient Protection and Affordable Care Act and acquisitions or from costly transac‐ (PPACA) survives attacks in the courts, continued tions involving technology and intellec‐ consolidation and reorganization among health care tual property; industry participants will likely occur. Moreover, • Payment and reimbursement disputes Congress has significantly enhanced the federal involving private and government government’s ability to pursue fraud claims, and the payors and pharmacies, physicians, U.S. Department of Justice (DOJ) is devoting sub‐ hospitals, and patients; and, stantial attention to investigations and prosecution • Risk management controversies (includ‐ of criminal and civil cases involving alleged health ing insurance coverage) involving issues care fraud. about responsibility for patient injuries and deaths (especially those outside the Overview of Health Care Disputes norm of “garden variety” med mal claims) and for various commercial There are many types of significant disputes in the claims, for example relating to payment health care industry: disputes or fraud claims.

• Patient safety claims against hospitals, Dispute Needs and Concerns in the Health Care nursing homes, physicians and other Industry professionals, and product liability claims against drug and device manu‐ Many health care industry disputes are uniquely facturers; suited to resolution outside the judicial system be‐ • Disputes among members of physician cause of particular needs and concerns of the groups (or between the “group” and in‐ health care industry: dividual physicians) or between hospit‐ als and physicians and other staff; • Concerns for patient privacy and busi‐ • False Claims Act (FCA) and other fraud ness confidentiality; cases against hospitals, physicians, drug • Reduction of time and cost devoted to disputes in an industry under special

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economic, political, and social pressures ate, the mediator may provide questions, com‐ to control costs; ments, observations or opinions about parties’ posi‐ • Timely elimination of disputes that tions and may make suggestions or proposals about threaten the very existence of partici‐ how to settle the dispute. A settlement reached in pants (e.g., government fraud claims mediation is documented in a binding contract en‐ that may threaten criminal exposure forceable in court. In arbitration, a disinterested, and exclusion from government con‐ impartial third‐party will make binding decisions tracting including Medicare and Medi‐ resolving the dispute and enter an award that can caid); be enforced in court, although the decisions have a • Management of important relationships loud ring of finality to them because courts will only with investors, lenders and financial rarely review arbitration decisions. In both analysts; employees/staff; and custom‐ processes the mediator or arbitrator will assist par‐ ers, vendors, and other business “part‐ ties in exchanging sufficient evidence and other in‐ ners”—all of which can suffer greatly in formation to make the process informed and fair. the midst of an ugly public dispute; • Preservation of on‐going business rela‐ Mediation and arbitration can address particular tionships among disputants, particularly needs of disputants in health care in various ways: in the context of expanding businesses, a consolidating industry, and develop‐ • Mediation and arbitration are more pri‐ ment of new business relationships; vate and confidential than court pro‐ • Elimination of business and personal ceedings; even required public release distractions among highly trained and of information about a dispute is better highly compensated professional staff controlled in managed private who truly “have better things to do” processes than a multi‐year public (i.e., treating patients and producing brawl in a courtroom potentially full of revenue) than spending days in confe‐ reporters and competitors; rence rooms and courtrooms with law‐ • Any form of ADR should be quicker to yers and administrators; resolution at materially reduced cost • A particular aversion to public contro‐ and with greater finality than disputes versy on the part of educational and re‐ in the judicial system; ligious organizations who often own • ADR proceedings allow for utilization of health care facilities or play other im‐ dispute resolution professionals with portant roles in the delivery of health applicable dispute resolution expertise, care services; and plus relevant regulatory, scientific or • Satisfaction of the patient safety con‐ other health care subject matter exper‐ cerns finding expression in the Joint tise as needed; Commission Standards requirements • ADR processes provide an opportunity for conflict management systems. for thoughtful resolution of emotional and highly charged disputes surround‐ Overview of Health Care ADR ing medical errors, patient safety, end of life, bio‐ethics, and inter‐staff con‐ In mediation, a disinterested, impartial third‐party troversy; can assist parties and their counsel in effectively • Mediation can provide a forum for re‐ communicating their respective positions to each solving disputes among multiple partic‐ other and in negotiating a settlement. As appropri‐ ipants who might not always be parties

to the same lawsuit, and can devise so‐ Government Fraud Cases lutions sometimes not available in court. Among the most difficult disputes facing partici‐ pants in the health care industry are FCA cases Current Use of ADR in Health Care brought by federal or state agencies (often initiated by relators) for alleged fraud in connection with Although at least three organizations (JAMS, Ameri‐ payments under government health care programs can Arbitration Association, American Health Law‐ including Medicare and Medicaid. The high stakes yers Association (AHLA)) offer health care‐ involved in these cases is one important reason why specialized panels of mediators and arbitrators, the parties should carefully consider attempting settle‐ health care industry has been slow to adopt ADR. ment through mediation. There could be many possible explanations why ADR is underutilized in health care. One possible Federal False Claims cases can result in civil penal‐ explanation is that health care lawyers as a group ties including treble damages plus $5500 to $11,000 might not have the same opportunities for exposure per claim, corporate and individual criminal liability, to mediation and arbitration as full‐time litigation and exclusion from government health care pro‐ counsel (think employment, construction, insurance grams. Most states provide for similar liabilities. The defense and family law) who may participate in a U.S. Department of Justice has reported that it re‐ dozen or more mediations or arbitrations per year. covered over $2.5 billion in 2010 and $4.6 billion Many health care lawyers are “specialists” in every since January 2009 in health care fraud cases. Sev‐ sense of the word, but they are often “health care eral reported recoveries against pharmaceutical and specialists” who work with their health care clients device companies have exceeded $100 million. Ac‐ on a variety of regulatory, transactional and litiga‐ cording to the U.S. Department of Justice, “Fighting tion legal issues. Other health care lawyers, espe‐ fraud committed against public health care pro‐ cially in the health fraud bar, have come to health grams is a top priority for the Obama Administra‐ law practice after years of practice in white collar tion.” criminal prosecution and defense work with little http://www.justice.gov/opa/pr/2010/November/10 ADR experience. Some private lawyers in fraud cas‐ ‐civ‐1335.html. es are skeptical about whether government agen‐ cies are genuinely interested in mediating fraud Recent legislatives change have enhanced the abili‐ cases, although anecdotal interviews with both pri‐ ty of the federal government and FCA qui tam rela‐ vate and government lawyers reflect both genuine tors to pursue False Claims: interest and successful experience on the part of both federal and state governments in mediating • PPACA § 6402 amended the federal An‐ appropriate health fraud cases. ti‐Kickback Law to make clear that viola‐ tions of the Anti‐Kickback Law can be Against this backdrop, there are many types of brought under the FCA. health care disputes in which ADR can make a posi‐ • The Fraud Enforcement and Recovery tive impact. Two particular examples include dis‐ Act (FERA) imposed FCA liability for putes related to professional business relationships overpayments, expanded DOJ’s power of physicians and government health care fraud to issue civil investigative demands, and cases. amended the FCA anti‐retaliation pro‐

visions to protect contractors and and likely publicized with some fanfare. But on the agents in addition to employees. day after the announcement, investors, lenders, • PPACA further defined overpayment financial analysts, employees, vendors, customers, liability to provide that retention of an and other key constituencies will start to view the overpayment for over 60 days after issue in the rear‐view mirror, rather than through identification by a provider can become the continuing scrutiny of a pending case with a still a false claim. uncertain outcome. The government in turn gets a chance to make a splashy announcement, satisfying Government investigations of possible FCA cases the important goal of potentially deterring future provide opportunities to use mediation to satisfy putative wrongdoers, without the cost of a longer important goals and interests of both government investigation and trial, and without the risk of send‐ and accused, while also potentially saving time, ing the wrong deterrence message if the trial is not money and other important resources. The conse‐ successful. quences to private businesses of an FCA case are potentially catastrophic in the form of monetary, Finally, use of mediation in government fraud cases criminal, and exclusion liabilities. A mediated set‐ provides a “forum” for resolution of issues with tlement agreement may avoid (or at least diminish) multiple parties and agencies. Settlement of qui exclusion and criminal responsibility while quantify‐ tam matters under the FCA can be particularly chal‐ ing civil monetary exposure at a known, agreed lenging because each settlement typically has mul‐ upon level. Even where a potential FCA defendant tiple parties, including DOJ, the Inspector General of genuinely (and perhaps correctly) views a potential HHS (which has administrative authority to exclude claim as defensible, such an approach to mediation the defendant from Medicare), the relator(s), and and settlement may often have some merit be‐ the defendant(s). If a defendant seeks a release of cause, among other reasons, a defendant can utilize any state liability for Medicaid claims, a settlement a mediated settlement to avoid the potentially will also require the involvement of state authori‐ enormous financial cost of lengthy further investi‐ ties, which ordinarily include a state Assistant At‐ gation, discovery, motion practice, and trial, the torney General, and sometimes many of them. Al‐ adverse impact on relationships, and a drain on the though DOJ and most state Attorneys General will time and energies of senior management and legal require most FCA settlements to be approved at personnel. From the government’s perspective, various levels of management (for example, Assis‐ substantial and adequate financial payments can be tant U.S. Attorneys and trial counsel at DOJ cannot recovered without the time, risk, and cost atten‐ ordinarily make binding settlement offers and dant to a trial against a well‐heeled and committed commitments), this challenge should rarely be sig‐ defendant. Similarly, governments can devote very nificant because final, “official” higher levels of ap‐ substantial, but nonetheless limited, financial, legal, proval are obtained routinely in the mediation and and investigatory resources to health care fraud settlement of many types of cases involving federal, cases, and a mediated settlement may allow gov‐ state, and local governments. ernment agencies to move on to other important investigations. ADR in Physician Business/Employment Disputes

When a mediation occurs prior to the unsealing of a When physicians’ relationships with one another or relator’s FCA complaint, a defendant may also have with other providers are fractured, a host of claims a chance to vindicate an interest in privacy, or at may ensue, including: for repayment of loans; for least in diminished public and media scrutiny. A de‐ breach of non‐compete, non‐solicitation, and anti‐ fendant’s settlement of an FCA case will be public theft provisions; for breach of fiduciary duty; for

violation of federal, state and local laws prohibiting cian cases. Finally, mediations are successful in set‐ employment discrimination; and for violation of tling a very substantial majority of cases where at‐ federal and state anti‐fraud laws. Both mediation tempted, but as mediations result in settlement and arbitration can potentially assist parties in at‐ only when the parties agree upon an outcome, it is taining several often mutually shared goals in these not overly simplistic to say that in contrast with liti‐ physician fights. gation, where a judge or a jury makes the parties’ basic business decisions for them, the parties to a When physicians’ business arrangements with one mediation decide the outcome. another sour, a principal goalr is (o should be) to get the business and legal issues resolved quickly, inex‐ R. Wayne Thorpe, Esq. has been a full‐time ADR pensively, and fairly. Many of these business organ‐ neutral since 1998. He has served as mediator, arbi‐ izations and contracts can benefit from contractual trator, special master, case evaluator and in other requirements that the parties arbitrate all disputes neutral roles in more than 1,400 cases, in at least 15 among the parties. These disputes often escalate states, involving all kinds of civil disputes, including into ugly charges among former colleagues about at least 100 health care disputes. He can be reached quality of care, billing legalities, employment dis‐ at [email protected]. crimination and harassment, or “stealing” patients, employees, and technology. Ordinarily, neither side benefits from airing those charges publicly. A well drafted arbitration clause in the organizational doc‐ uments for a professional practice or other contract documenting the business arrangements between physicians can require an appropriate type of exper‐ tise on the part of the arbitrator (including certain types or years of experience as arbitrator and/or in health care cases), and a hearing within a few months after an exchange of necessary documents and information but without the lengthy conten‐ tious discovery process that often makes litigation in the courts so protracted and costly. A business arbitration, when properly managed by an expe‐ rienced arbitrator, should almost always be quicker and less costly than a comparable lawsuit in court.

Mediations in physician disputes are particularly well suited to focusing the parties on the real busi‐ ness disputes needing resolution and away from the inevitable hurt feelings and sometimes exaggerated mutual claims of personal and professional miscon‐ duct. Mediation is private and confidential and can result in the amicable termination of business rela‐ tionships or the salvation and perhaps redirection of those relationships through negotiated outcomes often not achievable through the legal system— both points having special import at times in physi‐