Arguments Never End Over Kaiser Arbitration

Few arguments between the insurance, business and medical communities on the one side and the trial lawyers on the other ever seem to be resolved.

High courts may rule, new systems can be put in place, procedures may be broadly reformed. Yet the arguments go on and on.

This is certainly the case with Kaiser Permanente’s system of binding arbitration in disputes that arise with its 5.9 million members, all of whom must, as a condition of joining the HMO, give up their right to sue it in the public courts.

Nonprofit Kaiser, the largest private health system in the state, has an important role to play, even though it says it only has about 100 arbitrations a year in Southern California. This has led to court litigation to make its arbitration system fairer to both sides.

Three years ago, the state Supreme Court ruled 6 to 1 that Kaiser’s self-administered system was unfair to its members and, particularly, that Kaiser was stalling in naming so-called neutral arbitrators.

The court found that while an agreement specified that these arbitrators be appointed within 60 days, that occurred only 1% of the time. The average was 674 days, and the plaintiff in the case the court decided died before his arbitration even began.

Since then, Kaiser has put arbitration under a Los Angeles lawyer, Sharon Hartmann, with a contract detailing her independence. She is paid partly by Kaiser and partly by claimants’ $150 filing fee.

Last March 29, Hartmann began operating with a pool of 300 arbitrators, none of whom had represented Kaiser or opposed it in arbitrations over a five-year period.

Under the new system, computers produce a list of 12 names from that pool, each side can strike up to four, and then rank the remaining in order of desirability. Hartmann’s staff then adds up all the rankings and the person with the best composite score is named the neutral.

Those making claims of $200,000 or more have been allowed three arbitrators, two of whom are known as party arbitrators, chosen by the two sides. Most of the time, these people take the side of the party that chose them, leaving the decision up to the neutral.

Under the new system, though, Kaiser agrees to pay all the arbitration costs, if both sides agree not to appoint party arbitrators. That leaves the decision to the neutral arbitrator.

Hartmann told me that under the new system, so far it has taken only an average of 33 days, rather than 674, to seat a neutral arbitrator and that a majority of the parties have agreed to go with the single neutral.

So, her claim, and Kaiser’s as well, is that big progress toward speed and fairness has been made.

But sharp debate continues.

The 7th Amendment to the U.S. Constitution, part of the Bill of Rights, states, “In suits at common law, where the value in controversy shall exceed $20, the right of trial by jury shall be preserved. . . .”

Of course, Kaiser applicants are free to refuse to give up this right, but then they won’t be allowed to be Kaiser members. And they must make their choice without knowing what disputes they may face.

Claremont trial attorney Michael Bidart notes, “When the Bill of Rights was passed, the only one of the 10 amendments approved by all 13 states was the right to a jury trial. That was how important that right was deemed to be.”

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Beyond this is the argument of trial lawyers that regardless how they are chosen, the neutral arbitrators will continue to mostly side with Kaiser, especially in those cases involving the biggest claims.

Pasadena medical malpractice attorney Arlan Cohen, who approached me with this issue, contended, “The gist of the problem is that the trier of fact has a massive personal economic interest in the outcome in all Kaiser arbitrations. . . .

“Kaiser, being the defendant in at least 80% of med mal[practice] arbitrations, has superior information and dispositive economic power over neutrals which no plaintiff attorney or group of plaintiff attorneys begin to approach.”

Or, as Westside trial attorney Larry Feldman puts it, “You have to be the exceptional arbitrator to be blind to the fact that if you rule on behalf of the plaintiff in a significant case, then the person paying the bill may not want to pay the next time. That’s reality.”

It is true, however, that arbitrators who offend trial lawyers can be vetoed by them too. State law requires each arbitrator to disclose his or her records.

William Schoettler, an occasional Kaiser arbitrator, notes that there is an annual meeting of trial attorneys who rank arbitrators.

“If it is the perception of the litigating attorneys that I or any other retired judge or senior attorney is biased, prejudiced or otherwise unreliable, they will ‘vote with their pocketbook,’ ” he told me.

Meanwhile, Harry Low, a retired jurist and now arbitrator, observes, “I’ve made awards of $1 million against Kaiser, and some for them. There are many arbitrators whose sole success is due to their perceived impartiality and integrity.”

So why then has Kaiser for the past 30 years opted for arbitration over jury trials?

One reason frequently given by critics is that the arbitrators as a group are fairly conservative and usually will not award extremely large sums of money to claimants. Arbitration, thereby, allows Kaiser to avoid the risk of runaway juries making huge judgments.

Kaiser senior counsel Tony Santos, asked about this, acknowledged, “There is truth to that.”

But Santos added that juries reject 80% of malpractice claims that are not settled and come to trial, while Kaiser arbitrators only reject about 50% of such unsettled cases, so, he said, “it balances out.”

It does not balance out, Cohen said. He cited one recent case where the neutral arbitrator rejected a $6-million claim he had made, even though, in an earlier arbitration of another Kaiser case, he had awarded $285,000.

The facts in the two cases perhaps were far different. Still, the issue of fairness in arbitration will, I bet, last into the fourth millennium.

Ken Reich can be contacted with your accounts of true consumer adventures at (213) 237-7060 or by e-mail at ken.reich@latimes.com.