Kuehl Renews Fight on HMO Arbitration

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The Recorder

SACRAMENTO — Declaring that a crucial piece of legislation was left out of HMO reform last year, Assemblywoman Sheila Kuehl, D-Santa Monica, announced Thursday that she will carry a bill banning mandatory binding arbitration clauses in health care contracts.

Consumers will be able to sue their HMOs beginning in January 2001, but Kuehl contends that right will be invalidated unless patients can also “exercise their right to choose whether they want a public trial or a private arbitration to decide their case only after they know the extent of their injuries.”

Kuehl is calling her AB 1751 “The Patient’s Right to Trial Act,” and it is being sponsored by the Foundation for Taxpayer and Consumer Rights, a Santa Monica-based group founded by Harvey Rosenfield and closely allied with trial attorneys.

Kuehl, who chairs the Assembly’s Judiciary Committee, eliminated just such a provision from her more sweeping 1999 bill, AB 858. That legislation initially sought to ban pre-dispute binding arbitration from virtually all consumer contracts. Under fierce attack from an alliance of business groups and tort reformers, the bill was narrowed to banning them in employment contracts only. Its sponsor, the Consumer Attorneys of California, withdrew the bill before a Senate floor vote, but Kuehl will reintroduce it this spring.

Kuehl’s critics call her latest bill just part of the trial attorneys’ relentless attack on arbitration clauses. Such clauses, they say, lead to faster and less costly dispute resolution but preclude attorneys from big wins before juries.

“She’s just trying a different tack,” said Fred Main, senior vice president and general counsel for the state Chamber of Commerce. ” It’s simply a way to divert attention and resources and hopefully to get one of the two bills passed.”

Walter Zelman, president and CEO of the California Association of Health Plans, said that AB 1751 was inherently unfair because it would bar such arbitration provisions from managed care contracts while they remained commonplace in other professions and industries.

“More likely, she’s singling out managed care because it’s perceived as the weakest link in the chain, the first domino until they have the clout to go after arbitration clauses in all businesses and professions,” he said.

Zelman anticipates enlisting a wide coalition to fight the bill, saying, “All kinds of business and professional organizations should be alarmed, including doctors.”

Kuehl and her sponsors focused much of their attention around the landmark state Supreme Court case, Engalla v. Permanente Medical Group, 15 Cal.4th 951 (1997), to illustrate endemic and long-standing inequities in HMO- controlled arbitration.

In that case, which led to major reforms of Kaiser‘s arbitration system last year, the court found evidence of a self-administered arbitration system which delayed cases for its own benefit, averaging 674 days to appoint a neutral arbitrator instead of the 60 it promised.

Justice Joyce Kennard, in a concurring opinion, noted that “new possibilities for unfairness arise as arbitration ventures beyond the world of merchant to merchant disputes in which it was conceived into the world of consumer transactions.” There, she continued, arbitration agreements are “typically ‘take it or leave it’ propositions, contracts of adhesion.”

Kuehl’s press conference featured testimony by Aina Engalla Konold, who described how her father Wilfredo died of lung cancer the day before Kaiser — after five months — appointed an arbitrator to rule on whether an early misdiagnosis had contributed to his fatal illness. His death automatically halved the potential award for damages caused by pain and suffering.

Jamie Court of the sponsoring Rosenfield group called “forced” arbitration inherently unfair because arbitrators depend on repeat business from corporate clients; attorney abuse is not subject to judicial mediations; costs can rise to $400 an hour; and most importantly, “none of the abuses or documents uncovered can be made public,” nor is there judicial review of non- fraudulent legal errors.

In a health care protocol it promulgated in 1998, the American Arbitration Association joined with the American Medical Association and the American Bar Association to declare that binding arbitration should only be used after a dispute arises in cases involving patients.

But Robert Meade, a senior vice president at AAA based in New York, said that didn’t preclude pre-dispute arbitration clauses in health care contracts between insurers and employers. The protocol was intended, however, to exempt clearly ill patients involved in medical malpractice disputes.

“Patients of a health care provider or a doctor should never be asked to sign under duress,” he said.

AAA does handle some 300 health care arbitrations annually, he said, but they deal with routine disputes over cosmetic surgery, extent of coverage or length of stay and not typically medical malpractice issues in which punitive damages might be awarded. But, he hastened to add, “We’d abide by any law California chose to pass.”

Kuehl addressed the likelihood of Gov. Gray Davis‘ support for her measure, saying that a similar provision had been eliminated from last year’s SB 21, the bill allowing patients to sue HMOs, not because of Gov. Davis’ opposition, but because it was deemed extraneous among a host of other more hotly debated issues.

“No one said, ‘We don’t want a ban on arbitration,'” she reported. “The governor just thought we were taking on too many things as it was.”

And she indicated early support from at least one moderate Democrat, Assemblyman Dennis Cardoza, D-Merced, who is married to a physician.

But a powerful coalition mounted by the Chamber did derail AB 858 last year, and its members vow a similar fate for AB 1751. “We took a frontal attack on arbitration last year,” said Main.

“Kuehl couldn’t get a big piece, so she had to whittle it down, but that didn’t change our position. We believe arbitration is very fair and efficient . . .legislators of both parties see that, once the argument is made to them.”

–Reporter Catherine Bridge’s e-mail address is [email protected].

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