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Read Making a Killing

home / healthcare / in the media

San Francisco Examiner
Apr 30, 2000

by Jenny Strasberg

Arbitration Increasingly Under Fire

Unhappy with her treatment in a 1997 medical examination and not wanting to sue the doctor and just quietly seek a settlement, Maureen Alexander and her husband went up against Blue Cross of California in arbitration.

They thought they had an open-and-shut case. What they found was a private justice system carried out behind closed doors, subject to limited review by the courts and, in the Alexanders' view, stacked against them by design.

Taking Blue Cross to court was not an option. Like millions of other Californians - more than nine out of every 10 with health insurance, by widely accepted estimates - the Alexanders, from Alamo, had signed away their right to sue their health plan when they signed up for coverage.

The Alexanders could have used small claims court if their claim were less than $5,000, according to Blue Cross officials. It wasn't.

"You and I, in our taxes, pay for the right to go to court. I wish I'd had a jury of my peers," Maureen Alexander said in an interview. She and her husband, both in their 40s, said they weren't aware they'd signed an arbitration clause until they sought to file a complaint.

Their case highlights a hot-button issue that's pitting trial lawyers and consumer advocates against big business across the country and sparking legislation and appeals court debates from Sacramento to Washington.

In arbitration, parties submit disputes to an impartial person or panel for a final, binding ruling. The use of arbitration to resolve business-to-business disputes and disagreements between labor unions and corporations - formally established by the 1925 Federal Arbitration Act - has been widely applauded for its speed and cost-efficiency.

The practice under fire involves arbitrations between parties of unequal size and power: employee vs. corporation, for instance, and credit card customer vs. bank.

The use of mandatory arbitration continues to be an exploding practice, and nowhere more so than in California. The state has no licensing requirements for arbitrators, but currently two bills pending in the state Assembly seek to reign in private judge's powers.

Compelled arbitration reaches far beyond health care.

If the Alexanders - and, for that matter, most Bay Area residents - were to check their credit card, mortgage and automobile-purchase contracts, they'd likely find their Constitutional right to a trial waived several times over.

The use of mandatory arbitration clauses in consumer contracts has skyrocketed in the past several years, and the same goes for employment contracts.

Proponents say it helps ease the nation's overburdened courts. Even the harshest critics of mandatory arbitration agree that when the process is voluntary, it can, indeed, be faster and cheaper than litigation. But they argue that individuals should have a choice. And they say the value argument has lost steam as many arbitrators' hourly rates have climbed above $300.

Arbitration firms commonly charge administrative fees that run into the thousands of dollars. Many individuals also pay an attorney to represent them during the process.

"Self-regulation does not work, cannot work and will not work," said San Francisco plaintiff's attorney Cliff Palefsky, an employment lawyer and leading critic of pre-dispute mandatory arbitration clauses in consumer, health care and employment contracts. He has argued against the practice in the California Supreme Court and U.S. Supreme Court and has coordinated the National Employment Lawyers Association's national opposition.

"There is a serious problem when you turn an adversary system over to one party in the dispute and invite them to write the rules," Palefsky said. "The incentive to tip the scales in your favor, to take every advantage you can, is too strong. Corporate America views arbitration as risk management, as tort reform ... and the courts have shut their eyes to it."

Corporate America has vehemently disagreed.

Jim Alexander, a Walnut Creek attorney, represented his wife in her case against Blue Cross. The details of their case - unlike most arbitration proceedings - is open for examination because it's awaiting review by the California First District Court of Appeals in San Francisco.

Maureen Alexander sought an outside investigation into the care she received during a November 1997 visit to a Walnut Creek neurosurgeon. She went to him complaining of neck pain and tingling in her arm following a car accident.

She alleges that the physician, Dr. Terence Chen, performed an inappropriate medical exam by unnecessarily disrobing her of her medical gown without permission or warning and then poking the front of her body with a safety pin under the guise of sensory tests. In court documents, Chen has denied all accusations. No one was in the room besides the two of them, according to Alexander and Blue Cross testimony.

Chen, who is not named as a defendant in the case, did not return telephone calls from The Examiner.

Beyond the details of both parties' arguments, the case raises questions about consistency in the procedures by which arbitrations are carried out.

Interviews with officials at Blue Cross and the American Arbitration Association - the nonprofit, New York-based dispute resolution service that administered the case and which reports handling from 6,000 to 10,000 arbitration cases in California each year - revealed contradictions between Blue Cross and the AAA over what rules should have been applied to the Alexanders' case.

The differences potentially could affect procedural rules that critics of mandatory arbitration say routinely fall through the cracks.

The American Arbitration Association is not a defendant in the case; neither is Bruce W. Belding, the arbitrator in the case. Belding, a Sausalito attorney, said it would be inappropriate for him to discuss the case because of his role as arbitrator.

The Alexanders are seeking compensation for fees - the bill for the hearing, split between Blue Cross and the Alexanders, topped $8,600 - plus damages of less than $50,000.

Blue Cross wouldn't discuss specifics of the case but, in court documents, contends the arbitration process was fair and that the Alexanders' case was unfounded to begin with.

The Alexanders said they could have sued Chen for malpractice, but they wanted Blue Cross to be accountable for the care that patients receive under its plans as required by the state's Knox-Keene Health Care Service Plan Act of 1975.

According to California Association of Health Plans spokesman Bobby Pena, "the vast majority" of its 38 member health plans compel enrollees to sign arbitration clauses as a condition of coverage.

Tens of millions of Americans further are bound by credit card companies, banks, airlines, retailers and car companies to settle consumer disputes in arbitration. Millions more have signed agreements not to take their employers to court.

The pervasiveness has spurred the Equal Employment Opportunity Commission, a federal agency charged with enforcing U.S. civil rights laws, to criticize the practice loudly.

"The inequality of bargaining power, the circumstances of take-it-or-leave-it" inspired the EEOC in 1997 to adopt a policy against mandatory arbitration, said Gilbert F. Casellas, who was chair of the agency at the time.

The EEOC's policy is still out there, but it does not carry the power of law and has been largely ignored by hundreds of corporations, by courts and by arbitration firms.

Earlier this month, the California Supreme Court also reaffirmed the power of private arbitrators in consumer dispute cases. The court essentially said that courts lack authority to correct arbitrators' decisions even when based on legal mistakes, such as failing to award attorneys' fees to a winning party.

The rulings underscore how far arbitration has strayed from established law, Palefsky said.

"We think voluntary arbitration could be very beneficial," he said. "Arbitrators would have to treat both parties with respect in order to get their business."

When individuals have no choice, Palefsky said, "finality is more important than being right."

Two arbitration-related bills have been introduced in California by Assemblywoman Sheila Kuehl, D-Santa Monica, chair of the Assembly Judiciary Committee.

AB 1751 would prohibit health plans from forcing patients to waive due-process rights in order to obtain health care. That bill passed committee in March and is now before the Assembly.

Kaiser Permanente, the California Association of Health Plans and Blue Cross of California are among those opposing the bill. In Kuehl's words, "There's a full-court press by the health care plans against it."

Supporters include the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

"This is the blatant commercialization of a justice system that's supposed to be public," said Jamie Court, the group's advocacy director. "The real issues here are that arbitration is not like a court, and arbitrators are not like judges. If the HMOs like the way they arbitrate, (arbitrators) make more money."

Kuehl's AB 858, which has stalled on the Senate floor, would prohibit employers from making mandatory arbitration a contractual condition of employment.

In Washington, Sen. Russell Feingold, D-Wis, has introduced a bill challenging mandatory arbitration in credit card contracts.

But as long as cases stemming from mandatory arbitration clauses are legal, the AAA plans to continue accepting them, said Florence Peterson, senior vice president and general counsel.

"We've been in business for 75 years, and whatever the law is, we'll follow the law," Peterson said. "The EEOC is not the Supreme Court of the United States, nor is it the legislature."

The AAA does recommend, however, that companies make arbitration voluntary for their employees, Peterson said. "Voluntary is better," she said.

In 1999, the AAA heard 140,000 cases around the world, most between businesses or involving labor disputes in collective bargaining agreements, according to the AAA.

Between individuals and companies, the AAA administered 1,950 employment arbitration cases nationally, 950 stemming from mandatory arbitration clauses. About 300 cases involved Title 7 statutory claims, according to the AAA.

The American Bar Association Section of Dispute Resolution's conference this month in San Francisco showed what a heated topic mandatory arbitration has become.

During a panel discussion, Maria Chedid, a San Francisco attorney with a mixed practice of arbitration and litigation, refuted the common criticism that arbitration favors companies over the little guy.

"I've often wondered why anyone would not want arbitration," she told the audience. "Consumers fare as well as corporations."

Panelist Laura Nader disagreed. She's a University of California-Berkeley anthropology professor who has taught at Yale, Stanford and Harvard law schools and has followed arbitration for decades.

"I think you have to look at the big picture here. We have promised people the right to court and a trial. That is the basis for democracy," Nader said.

Others say that's an oversimplification.

"What the Supreme Court has really said is that it (arbitration) doesn't have to be voluntary," panelist Lewis Maltby said after the public discussion. He is president of the National Workrights Institute in Princeton, N.J., and formerly was with the American Civil Liberties Union's workplace rights task force.

"The institute believes the civil justice system is broken for most people," and that many employees who have civil complaints can't find an employment attorney willing to represent them, Maltby said. Arbitration "at least offers some hope of solution."

Following Maureen Alexander's medical exam, and unsatisfied with a Blue Cross investigation into her complaint, the Alexanders requested an arbitration hearing with Blue Cross, challenging a company that has been using arbitration for two decades.

Jim Alexander has experience with arbitration, too. In his law practice, he has represented clients in at least 100 arbitrations and has himself served as an arbitrator, he said.

He believes in the process, he said. But of the hearing with Blue Cross, he said, "I've never felt, as I did in this one, that the rules were completely thrown away. The guys with the big bucks love it, because people get squished out of this. There's no recourse."

During the arbitration process last year and in Blue Cross's court filings, Chen said his exam was medically necessary; Blue Cross has supported that position and maintains that Chen is a respected physician with a clean record. A spokeswoman for the Medical Board of California said the agency has no publicly listed complaints against Chen (the board does not publish complaints it does not consider valid). Records show he has been licensed in the state since 1991. The medical board was asked to review Alexander's complaint but found it didn't warrant discipline, court documents show.

The Alexanders believe they were unfairly kept away from Blue Cross records on Chen that could have helped them with their case. Nor did they have a way of demanding the files, despite discovery privileges they contend were theirs under civil law and also according to policies of the AAA.

During arbitration proceedings, the AAA arbitrator ruled that Blue Cross had to produce files on Chen. Blue Cross denied possession of any files on the doctor, according to court documents.

A Blue Cross spokesman told The Examiner that Blue Cross does, in fact, keep credentialing files on all physicians who provide care under its plans.

The Alexanders said they also, prior to the hearing, objected to the choice of arbitrators, an attorney with experience in securities and corporate disputes but with little background in medical issues. The Alexanders said they never received a response to the objection.

In recent interviews, Blue Cross and AAA officials said it is their policy to honor objections about the choice of arbitrators.

More inconsistencies surfaced within the AAA in interviews conducted by The Examiner. The AAA's vice president over health care and consumer cases and business development, Robert E. Meade, said he was unaware that the AAA is the arbitration provider written into the Blue Cross of California's health plan contracts.

Blue Cross spokesman Michael Chee said the AAA is, in fact, written into contracts covering roughly one in six Californians.

Pat Keane, associate general counsel for Blue Cross, said the company has chosen to use the AAA's rules for commercial arbitration, disregarding its health care rules. Adopted in 1992, the health care guidelines generally call for more extensive discovery and the use of arbitrators versed in medical issues.

Meade said the AAA no longer considers its commercial rules appropriate for health care cases.

"If they had called me, I would have said, 'No, no, no, not commercial - we have health care rules," Meade said. "The problem is at this point in time, once an arbitrator renders a decision and it's in the hands of the court, there's absolutely nothing we can do."

From his AAA office in the Financial District of San Francisco, Paul L. Van Loon, regional vice president for Northern California, revealed another inconsistency: He said his staff does, in fact, apply the AAA's health care guidelines to cases between patients and providers, which is inconsistent with the Alexanders' case.

Under the health care rules, both parties are provided a list of arbitrators from which to choose "so that we can ensure there's a fair process," Van Loon said.

The Alexanders said they never received a list of arbitrators.

Chee said critics of mandatory arbitration in health care exaggerate the problems in the system by suggesting that thousands of health plan enrollees go through arbitration in California every year.

Blue Cross receives h

GRAPHIC: COLOR PHOTO 1, PHOTOS 2 - 4, Paul L. Van Loon and the American Arbitration Association defend corporations' efforts to force consumers and employees into arbitration: "Consumers fare as well as corporations," argues San Francisco attorney Maria Chedid, disputing the notion that the process is stacked against individuals. "I've often wondered why anyone would not want arbitration.": Because many workers can't find an employment attorney willing to represent them in court, Lewis Maltby, president of the National Workrights Institute, believes arbitration can offer "some hope of resolution.": Florenc e Peterson, senior vice president and general counsel of the American Arbitration Association., JUSTIN SULLIVAN, EXAMINER

LOAD-DATE: May 3, 2000


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