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Legal Update
The Art of Arbitration
Paul Davidson
Publish Date: November 17, 2007

Every healthcare executive sees litigation and the possibility of adverse publicity looming on the horizon. Relations with a joint venture partner, a physician, a vendor, a patient or an insurance company can, and often do, result in highly contentious disputes. The time, expense and uncertainty involved in traditional courtroom litigation have driven healthcare leaders to search for alternative means of resolving their disputes.

Before disputes ever arise, you can take positive steps to ease their resolution by including tailor-made alternative dispute resolution procedures in your contracts. Because arbitration agreements are governed by principles of contract law, you're generally free to include arbitration provisions in your agreements with vendors, physicians, managed care organizations and even patients.

The parties to a contract that includes an arbitration clause can select their own private judge, agree to their own schedule, and even create their own discovery process and procedural rules. The final resolution of the dispute is just as binding as going to court and often comes sooner, with less acrimony, at a lower cost and with little or no publicity.

Aspects of arbitration
The commonly recognized benefits of carefully drafting tailor-made arbitration procedures include the following:

  • Informed mediator. A decision-maker knowledgeable about your industry will resolve the case. As a result, arbitration minimizes the risk that an uninformed, impassioned jury will award lottery-style damages.
  • Less expensive. Arbitration is typically not as expensive as going to court because it's less formal, the parties can agree to simpler procedural and evidence rules, and pre-trial discovery is significantly streamlined.
  • Flexible scheduling. The parties can be more flexible with the scheduling of the times and places for arbitration hearings and discovery than if they're dependent on court schedules, over which they have no control.
  • Maintain confidentiality. Because the dispute will be resolved privately and out of the public eye, confidentiality is maintained, which may result in less hostility among the parties.
  • Still friends? When there is less hostility among the parties, there may be less disruption of their ongoing and future dealings.
  • Tailor-made resolution. Arbitrators aren't bound by the same rules that judges and juries are, thus they may have more flexibility to fashion a remedy that is particularly appropriate to the dispute.
  • No publicity. Court cases are public and the results are often reported on national databases. Arbitrations, on the other hand, aren't generally publicized. Consequently, tag-along suits aren't as likely and you can avoid the unwanted ripple effects of public lawsuits and adverse judgments.

Potential pitfalls
Because of these benefits, arbitration is an ideal alternative to traditional litigation. However, the process may not be best for every dispute. You should carefully weigh the pros and cons when drafting your contracts. Obtain legal advice when drafting arbitration clauses in the patient admissions context so as to avoid successful legal challenges from plaintiffs' attorneys. Moreover, the danger of simply agreeing to a boilerplate arbitration clause could bring about unintended results. A failure to properly consider all of the issues makes you susceptible to the following risks:

  • Forfeiting procedural guarantees. There are many important procedural guarantees in our judicial system, such as the right to discovery and appeals. Once you agree to arbitrate a dispute, many of those procedural guarantees will be lost. This is just one of the reasons why the arbitration agreement should be carefully considered and drafted on the front end.
  • Limited discovery. In courtroom battles, discovery (document requests, interrogatories, requests for admission and depositions, for example) can be extensive. In arbitration, discovery is typically more limited. Consider on the front end what kind of discovery will be appropriate in the event a dispute arises.
  • Where's the written judgment? Arbitrators, in most cases, will not give a written reasoned judgment. This can be frustrating to the parties. You can deal with this issue in advance by an agreement that the arbitrator will state the reasons for his decision.
  • Reliance on third parties. Arbitration is a matter of contract. That makes it difficult to bring third parties into the dispute resolution process who refuse to join the arbitration proceedings, even though their participation may be necessary to reach a suitable agreement.

Your key considerations
If, after weighing the pros and cons, you've decided that the arbitration process is in your facility's best interest, here are some of the key factors you must consider when negotiating or drafting a dispute resolution agreement:

  • Which law? Determining which applicable law should control the outcome. This is especially key in multi-state and international disputes.
  • Where? Determining where the arbitration should take place. This can also be of particular importance when you're involved in multi-state and international disputes.
  • Procedural rules. Whether you will adopt the procedural rules of an arbitration provider organization (such as the American Arbitration Association, JAMS, the American Health Lawyers Association or the CPR Institute for Dispute Resolution) or whether you will craft your own choice of procedural rules (including the possibilities of pre-arbitration negotiation and non-binding mediation).
  • The process for choosing arbitrators. The above-mentioned organizations include panels of well-qualified arbitrators. Alternatively, the parties can agree on their own process for selection or even to a particular arbitrator or panel in advance.
  • Consolidate disputes? When there is the potential for multiple and similar disputes between the same parties (for example, disputes against managed care organizations), consider whether those disputes can or should be consolidated into one arbitration.
  • Discovery. The scope and limits of pre-arbitration discovery.
  • Put it in writing? Whether the arbitrator will be required to give a written reasoned basis for his judgment.
  • Take it to court? Whether either party will be allowed to seek judicial review of the arbitrator's award in a court of law.
  • How much damages? Whether the arbitrator will be limited in what relief can be awarded and the extent of allowable damages.
  • Attorneys' fees. Whether the arbitrator can award attorneys' fees to the prevailing party.

A growing trend
While arbitration may not be suitable for all types of disputes, you should strongly consider including arbitration as part of a comprehensive dispute resolution strategy. In most cases, with a carefully crafted agreement, arbitration can indeed be faster, cheaper and fairer than cases resolved in court.

Arbitration is indeed a growing trend in the healthcare field. The effectiveness of arbitration and its enforcement can depend, however, on how well thought-out the procedure is on the front end. What is the takeaway? Carefully consider whether to adopt appropriate arbitration procedures as part of an overall dispute resolution strategy.