California Research Bureau Finds HMO Arbitration Is Unfair

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The California Research Bureau, the state equivalent of the US General Accounting Office, has issued a report today that shows more than three-fourths of Californians who are enrolled in managed care companies are forced into binding arbitration as a condition of enrollment and that the arbitration process itself is unfair. The report is on the Internet at

“This report should convince the legislature that patients should not have to waive their right to trial simply to join an HMO,” said Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights, which intends to reintroduce state legislation stopping forced arbitration at HMOs. “This report shows the HMO’s private justice system is tilted against the patient. With a new HMO liability law in effect as of January 1st, it’s more critical than ever that patients with HMO problems not be kept out of court by forced arbitration agreements. Other states with HMO liability laws, such as Texas, Washington, and Georgia, do not permit HMOs to force patients into secret arbitration proceedings where private lawyers, rather than judges, preside.”

The report, minor modifications to which are detailed in cover letter from State Senator Sheila Kuehl, finds:

* Many health plans are apparently not complying with state reporting requirements regarding even minor details surrounding the outcomes of their private arbitrations.

* Contrary to claims by proponents of mandatory arbitration, “Arbitration is expensive, at least for patients on normal budgets. California arbitrators typically charge $250 to $400 per hour [and a] typical California health care arbitration costs around $4,500.”

* While health plans are likely to have repeated experiences with individual arbitrators and are in a good position to make informed decisions when choosing an arbitrator for a case, “Patients may not be as well informed about arbitrator behavior, especially if they are proceeding without the aid of a lawyer” — which the report notes is the case with very high frequency.

* California, like most states, does not have established professional standards or licensing requirements for arbitrators. Thus private arbitrators generally do not have to meet even minimal standards of conduct, nor is there any real mechanism for a patient to challenge an arbitrator’s professional qualifications.

* Contrary to earlier claims by some proponents of mandatory arbitration in health care, there appears to be a very high rate of repeat use of preferred arbitrators by HMOs, including in the Kaiser system, which was supposed to be reformed following condemnation of its practices by the California Supreme Court. In a review of 1999 arbitration claims on file with the Department of Managed Health Care, the report found that 30 percent of Kaiser Permamente’s arbitration claims (the largest of the health plans mandating the use of binding arbitration) were decided by just eight repeat arbitrators (five or more arbitrations each). Strikingly, six of these eight repeat arbitrators ruled in favor of the defense (Kaiser) in 80% of the cases. The report further states that if one defines a “repeat arbitrator” more broadly as someone who arbitrates more than three claims in a given year, almost half (46 percent) of the Kaiser cases were decided by repeat arbitrators. In those cases, plaintiffs won less than a quarter (24 percent) of the time.

Consumer Watchdog
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