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An Introduction to the Kaiser Arbitration System

Copyright 2012, Jay Chafetz

Posted: Tuesday, July 24, 2012

1. Introduction.

Kaiser requires all claims for medical malpractice against it to be resolved by binding arbitration rather than through jury trials. This requirement is well-established and has been upheld by the courts. See Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 705-706; Engalla v. Permanente (1997) 15 Cal. 4th 951; 938 P.2d 903; 64 Cal. Rptr. 2d 84.

Pursuant to this requirement, any claim against Kaiser arising out of the rendering of professional services must be arbitrated, regardless of how it is denominated. In addition, claims against various subcontractors of Kaiser must also be arbitrated. The arbitration clause is enforceable against the member who signed it, the member whose employer furnished the insurance, and the spouse and children of the member. See Madden, supra, 17 Cal.3d at 705-706 (Board of Administration of the State Employees Retirement System held to have implied authority to agree to arbitration of medical malpractice claims on behalf of state employees; thus, the arbitration agreement could be enforced against an enrolled employee who had never seen it in advance); Doyle v. Giuliucci (1965) 62 Cal.2d 606, 43 Cal.Rptr. 697 (parent has authority on behalf of child to agree that claims for medical malpractice be arbitrated.)

Claims that must be arbitrated include not just those for negligence, but also for battery, wrongful death, and loss of consortium.

2. To whom does the arbitration clause apply?

The arbitration clause applies to all Kaiser members. As noted above, members are often unaware of the arbitration clause. The insurance may have been provided by an employer and the member may not have personally signed an arbitration agreement. Certainly, the member’s children and heirs will not have signed it. None of this matters. (See cases cited above and Ruiz v. Podolsky (2010) 50 Cal.4th 838, 851-852; but see Rodriguez v. Sup. Ct. (2009) 176 Cal.App.4th 1461, 98 Cal.Rptr.3d 728 (arbitration agreement governed by C.C.P. § 1295 could not be enforced against child, who was wrongful death claimant after death of her mother, when the death occurred before the 30-day revocation period under C.C.P. § 1295 (c) had passed.) The clause applies so long as it is in the proper form.

3. What is the proper form for the arbitration clause?

The form that the clause must take is specified by Health and Safety Code section 1363.1. The clause must:

“(a) . . . clearly state whether the plan uses binding arbitration to settle disputes, including specifically whether the plan uses binding arbitration to settle claims of medical malpractice.

(b) . . . appear as a separate article in the agreement issued to the employer group or individual subscriber and . . . be prominently displayed on the enrollment form signed by each subscriber or enrollee.

(c) . . . clearly state whether the subscriber or enrollee is waiving his or her right to a jury trial for medical malpractice, other disputes relating to the delivery of service under the plan, or both, and . . . be substantially expressed in the wording provided in subdivision (a) of Section 1295 of the Code of Civil Procedure.

(d) In any contract or enrollment agreement for a health care service plan . . . be displayed immediately before the signature line provided for the representative of the group contracting with a health care service plan and immediately before the signature line provided for the individual enrolling in the health care service plan.” H & SC § 1363.1.

If you are in contact with Kaiser’s attorneys before filing suit or demanding arbitration, request a copy of the enrollment form and arbitration clause and compare it to the statute for compliance. If the statutory requirements are not met, it may be possible to avoid the arbitration clause. Burks v. Kaiser Foundation Health Plan, Inc. (2008) 160 Cal.App.4th 1021, 1029. Some attorneys who practice in this field, however, try to argue that the arbitration clause is invalid not because they really wish to try a medical malpractice claim in front of a jury (juries tend to favor health-care providers over patients), but simply to serve as a bargaining chip in order to negotiate for selection of an arbitrator more likely to rule in favor of a plaintiff.

4. How do you start a Kaiser arbitration?

A patient starts a Kaiser arbitration by serving a Demand for Arbitration on Kaiser, along with a $150 filing fee (made payable to "Arbitration Account.") The rules governing Kaiser arbitrations (most recently amended as of April 1, 2011) permit waiver of the filing fee under specified conditions. (Rule 12.b. of the Rules of Kaiser Permanente Member Arbitrations (hereinafter all citations to these rules will simply cite the number of the rule or say the “Rules.”)) (The rules may be downloaded from the website of the Office of Independent Administration.) (Rule 12.b.)

No particular form is required for the Demand for Arbitration, but it must contain this information: "the basis of the claim against the Respondent(s); the amount of damages the Claimant(s) seeks in the Arbitration; the name, address and telephone number of the Claimant(s) and their attorney, if any; and the name of all Respondent(s).” (Rule 7.) Further, "Claimant(s) shall include all claims against Respondent(s) that are based on the same incident, transaction, or related circumstances in the Demand for Arbitration.” (Rule 7.)

The Demand for Arbitration will serve as the outline of the case for purposes of subsequent motions for summary judgment or in determining the relevance or admissibility of evidence at the arbitration hearing.

5. Whom should I name as respondents?

In Northern California, the Kaiser health system is organized into three entities: the insurance company (Kaiser Foundation Health Plan, Inc.), the hospital system (Kaiser Foundation Hospitals), and the medical group (The Permanente Medical Group, Inc.). Outside of the Kaiser system, this would be analogous to, for example, Blue Cross, Alta Bates Summit Medical Center, and the particular doctor who provided care at the hospital.

While I typically name all three entities, it would be a rare case in which the health plan would actually be individually legally liable for anything.

It is not necessary to name individual doctors or hospital employees. Kaiser will provide defense and indemnity for them.

6. How do I serve the Demand for Arbitration?

In Northern California, the Demand for Arbitration may be served on Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals, or The Permanente Medical Group, Inc., by mailing it to the respondents in care of Kaiser Foundation Health Plan, Inc., Legal Department, 1950 Franklin Street, 17th floor, Oakland, CA 94612. Any other Respondents must the served in accordance with the Code of Civil Procedure. (Rule 8.) A document that must be served on the Office of Independent Administrator, may be mailed to 3580 Wilshire Blvd., Suite 2020, Los Angeles, CA 90010, faxed to 213-637-8658, or sent by e-mail to oia@oia-kaiser-arb.com. (Rule 9.)

7. How many arbitrators should I use?

If the Demand for Arbitration seeks damages of $200,000 or less, the dispute is heard and determined by a single neutral arbitrator, unless the parties otherwise agree in writing that the arbitration shall be heard by two Party Arbitrators and a neutral arbitrator. (Rule14.)

If the Demand for Arbitration seeks damages in excess of $200,000, the dispute is heard by one neutral arbitrator and two Party Arbitrators. But the parties may waive the right to a Party Arbitrator by returning a form so indicating. (Rule 14.b.)

The default rule is that each party pays one half of the cost of the single neutral arbitrator and the full cost of that party’s Party Arbitrator. Kaiser will pay the full cost of the neutral arbitrator, however, if the claimant agrees to waive any potential objection arising out of such payment and signs and returns a Waiver of Objection form. (Rule 15. a.) Because the cost of the single neutral arbitrator is not a recoverable cost (C.C.P. § 1284.2; Rule 46; see Woodard v. Southern California Permanente Medical Group (1985) 171 Cal.App.3d 656, 663, 217 Cal.Rptr. 514), many attorneys will waive the objection. Similarly three-arbitrator arbitrations are quite expensive, and attorneys commonly waive them for the same reason.

8. How are arbitrators selected?

Within three business days after it has received both the Demand for Arbitration and the filing fee (or it has waived the filing fee), the Independent Administrator simultaneously sends to each party an identical list of twelve possible arbitrators, along with the application forms submitted by those arbitrators to serve on the panel and redacted awards that the arbitrators have made in previous Kaiser arbitrations. (Rule 16.a.)

This can be a rather large and intimidating package. Nothing is more important in a Kaiser arbitration, however, than picking an arbitrator who is at least open to making an award in favor of a claimant in an appropriate case, so go through the materials carefully. If possible, make sure any arbitrator you are considering has found for a claimant at least once. Discuss the names of potential arbitrators with coworkers, office mates, or other plaintiff's attorneys on the list serves to find out other people’s experiences and impressions of the arbitrators.

Unless an extension of time has been granted, each of the parties must respond to the list within 20 days from the date that the Independent Administrator sends it. (Rule 16.c.) The parties may jointly agree to use a person on the list or some other person, or to use a rank-and-strike process. In the latter process, each party strikes up to four names off the list and ranks the rest in order, “1” being the most preferred and ”8” the least. (Rule 16.a.) The Independent Administrator then selects as arbitrator the person with the lowest combined score whose name has not been stricken by either party. (Rule 16.e.)

9. How much may I sue for?

Kaiser arbitrations are subject to the usual substantive rules of law that govern actions for professional negligence, including MICRA, which limits the recovery of non-economic damages in such cases to $250,000. C.C. § 3333.2.

If you are in doubt about whether your case is worth less than or more than $200,000 but do not want to pay for a Party Arbitrator, always demand more than $200,000, and then waive the Party Arbitrator.

10. What happens after the arbitrator is appointed?

After he or she is appointed, the arbitrator, schedules an Arbitration Management Conference within sixty days. (Rule 25.a.) This conference is usually held telephonically. In it, the arbitrator and the parties will discuss the case, what discovery needs to be done, how many days should be reserved for the arbitration, and when it will occur. The default rule, which was apparently adopted in response to an abuse that resulted in a reported case, Engalla v. Permanente, supra, 5 Cal. 4th 951; 938 P.2d 903; 64 Cal. Rptr. 2d 84, is that the arbitration must be concluded within 18 months of the date that the Independent Administrator receives the Demand for Arbitration. (Rule 24.a.) Provisions exist for obtaining more time in complex cases. (See Rule 24.b –c.) Scheduling will often be done as in a federal, as opposed to a state court case, with the arbitrator setting dates for the completion of lay discovery, disclosure of experts, and completion of expert discovery.

11. When does discovery commence?

Defense attorneys in these cases routinely and reflexively send out discovery as soon as they learn of the case. The rules for Kaiser arbitrations, however, provide that no discovery may be served, over objection, before appointment of the arbitrator. (Rule 27.a.) Thus, you can object to discovery served before that and try to make sure that the parties will be exchanging initial information roughly simultaneously instead of providing information to the defense first and obtaining information from the defense later.

Discovery is conducted in accordance with the Code of Civil Procedure. In addition, Rule 27.c, provides that Kaiser shall provide a copy of the medical records, at the claimant’s expense, within 30 days of a request for the same.

12. Litigating the case up until the arbitration hearing.

Once discovery commences, the case unfolds the same way it would in court and is subject to the same rules of procedure as in the Code Civil Procedure, absent other agreement by counsel or other order by the arbitrator. The attorneys may issue subpoenas to compel the attendance of witnesses at the arbitration hearing. (Rule 30.)

If problems arise during discovery, motions may be filed directly with the arbitrator. Also, some arbitrators will entertain more informal discovery resolution procedures, including telephone calls during depositions, or telephone conferences to discuss discovery issues short of the filing of formal motions. Once in a case when discovery totally broke down, I discussed the possibility of the arbitrator's appointing a discovery referee, on the assumption that Kaiser would have to pay for the referee just as it was paying the entire cost of the single, neutral arbitrator. While the arbitrator never got so far as entering such an order, the mere threat of this order seemed to expedite discovery from that point forward.

13. Settling Kaiser arbitrations.

A Kaiser arbitration may be settled like any other case--at any time during the proceedings. The rules for Kaiser arbitrations require there to be a “mandatory settlement meeting” no later than six months after the Arbitration Management Conference. (Rule 26.a. ) The “meeting” may take the form of a telephone call. Persons with authority to settle do not have to attend, but in that event the attorneys must have the authority to settle, or the parties must be available to participate by telephone. (Id.)

I have always found this “meeting,” which usually ends up being a telephone call between the attorneys, to be unproductive. The attorney for the defense will usually call, or even have a low-level associate call, and assure me that while he has the authority to settle the case, the authority he has been given is zero.

Some defense counsel have told me that Kaiser pays its attorneys on basically a flat-rate basis and therefore that defense counsel has no incentive to prolong unduly a meritorious case. Nevertheless, in my experience early settlements with Kaiser result only where Kaiser itself has determined that liability is clear, or Kaiser knows from experience that the plaintiff’s attorney who has brought the case is experienced and determined.

Do not expect Kaiser to throw money at you early in your first case, unless liability is very clear.

14. Arbitrating the case.

The arbitrator has discretion to decide how to run the arbitration hearing. An arbitrator does not technically even have to follow California law. Woodard, supra, 171 Cal.App.3d at 662.

Typically the arbitration hearing will be conducted like a court trial would. Motions for summary judgment are often brought in cases involving in pro per plaintiffs. Such plaintiffs usually do not know how to oppose the motion, do not have an expert, or do not know how to submit the expert's testimony in the form of a declaration.

When the parties have rested, the arbitrator declares the haring closed. (Rule 31.a.) The arbitrator may request post-hearing briefs. The date for submission of such briefs must be not more than fifteen days after the parties have rested. (Rule (31.b.) If post-hearing briefs are requested, the arbitration hearing is deemed closed on the date set for the submission of the briefs. (Id.) The arbitrator shall serve the award no later than 30 business days after the closing of the arbitration hearing, except in Extraordinary and Complex cases. (Rule 37.)

15. Costs.

Ordinary costs are not recoverable. C.C.P. § 1284.2 Unless Kaiser is paying all of the costs of the neutral arbitrator, each party will bear one half of that cost regardless of the outcome. Id. Costs of expert witnesses may be awarded under CCP § 998. See 1997 amendments to C.C.P. § 998, e.g., C.C.P. § 998 (b).

16. Conclusion.

While the initial reaction of a plaintiff's attorney may be to be uncomfortable with a binding Kaiser arbitration as a method for resolving a medical malpractice case on the theory that it is inferior to a jury trial, this reaction may not be deserved. A judge may be more forgiving of an imperfect plaintiff than a jury would, an arbitration hearing is usually shorter than a jury trial and can be more conveniently scheduled, and arbitration will typically be concluded within a reasonable timeframe. The cost of the neutral arbitrator can be avoided by shifting the obligation to pay him to Kaiser. If there is built-in bias in favor of Kaiser on the part of the arbitrators on the panel because they get repeat business from Kaiser, it can be minimized by making sure to select an arbitrator who has a track record of at least occasional awards against Kaiser.

Further, Kaiser does not force every case to hearing just because it is freed from the prospect of a jury trial. Kaiser will still resolve meritorious cases before the arbitration hearing. By effective use of the Rules, claimants can receive reasonably prompt and substantial justice under the system, even if arbitration awards in favor of claimants may be somewhat lower, in general, than the verdict of an angry jury.


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