DLA Piper: Binding Arbitration in Managed Care Contracts - 6 Tips to Tailor Your Dispute Resolution Provisions

By Stephen L. Goff and John Barnes

The Affordable Care Act is moving millions of previously uninsured patients into commercial managed care health plans. As the healthcare system grapples with complexity of this shift, the size of disputes between healthcare providers and managed care payers, in terms of sheer dollar value, is going to be greater than ever.

At the same time, America’s court system is facing a crisis of resources. Litigants seeking to bring basic disputes to trial are encountering longer waits than in any other time in recent memory. Against this backdrop, it is clear that healthcare providers and payers may benefit from agreeing to binding arbitration of any disputes.

The factors that make binding arbitration so appealing include the following:

• Arbitration is faster. With the oversight of a strong arbitrator, most disputes can reach a hearing in 12-18 months. Compare this to the 3+-year wait in most states’ lower courts.
• Managed care is complex. Healthcare disputes, particularly those involving large sets of claims, are fact-heavy and not conducive to resolution under normal rules of discovery and evidence.
• Discovery is expensive. The scope of permissible discovery can be tailored to allow a sufficient exchange of information, without the overwhelming costs associated with modern discovery.
• Confidentiality is critical. Sensitive business disputes remain confidential under arbitration. Managed care disputes often involve parties who have an ongoing contractual relationship. Binding arbitration allows the parties to resolve their dispute in a confidential forum, without the danger of a public release of the facts underlying the dispute.
• Results are enforceable. Awards from binding arbitration are enforceable in court just like a judgment issued after a court trial

Parties that wish to negotiate a binding arbitration provision in their contract should treat that term equally with other key aspects of the parties’ contract. The major dispute resolution organizations, such as the American Arbitration Association and JAMS, have boilerplate dispute resolution provisions that may be sufficient to trigger the obligation to submit some disputes to binding arbitration according to these organizations’ general arbitration rules. But no templates have been tailored to healthcare-specific disputes like there are for some industries like construction and employment. Thus, it is incumbent on the parties to negotiate terms that address the issues that typically arise in the context of managed care disputes.

Here are six tips to keep in mind when negotiating a binding arbitration provision:

1. Scope: The parties should consider whether they want all disputes between them to be resolved in binding arbitration, or only certain types of disputes, such as disputes over claims.  Another wrinkle can be determining whether payers that are accessing the rates in the agreement (i.e., leased network PPO payers) should be bound by the terms of the dispute resolution provision.

2. One, two or more arbitrators: Parties may anticipate that disputes between them may involve tens of millions of dollars, and may be reluctant to agree to place resolution of these disputes into the hands of a single arbitrator. Agreeing to a dollar threshold for a panel of arbitrators will avoid later disputes over whether the dispute should be decided by more than one arbitrator.

3. Selection of neutrals: Dispute resolution providers have become more sophisticated in the areas of healthcare provider reimbursement, and many arbitrators have developed a solid background in the basics of managed care reimbursement. To avoid spending significant time and effort educating an arbitrator about the ABCs of managed care reimbursement, parties should consider adding a term to the binding arbitration provision that requires any proposed arbitrator to have a background in resolving managed care disputes.

4. Scope of discovery: More than any other term, it is the discovery provisions that will make or break the success of the binding arbitration process. The general rule of arbitration is that the parties have no discovery rights. There is an exchange of information that the parties intend to rely upon very shortly before the hearing, and sometimes an exchange of witness lists. This approach does not work for managed care disputes, which frequently involve hundreds or even thousands of claims, and receiving the information that the other side is going to rely upon right before trial does not give the parties sufficient time to prepare. Parties should consider an early exchange of the specific patient claims they intend to present at trial, as well as an early disclosure of documents, witnesses and experts. If the parties believe that depositions should be permitted, they should consider limiting the number of fact witness depositions. In all cases, the parties should be permitted to depose the other side’s experts.

5. Conduct of the hearing: One of the benefits of arbitration is that arbitration proceedings are not generally subject to strict rules of evidence unless agreed to by the parties. The parties should consider allowing some testimony to be presented by declaration, so as to avoid the cost of preparing a witness to present foundational evidence. The parties may also wish to consider limitations on the length of proceedings, depending on the amount in dispute.

6. Judicial review: Arbitration awards are not generally appealable, except that some jurisdictions allow for the parties to agree to judicial review of errors of law. Parties will want to consult with counsel knowledgeable in the law regarding binding arbitration in the state in which they are operating to determine if such review is permitted.

You can’t turn back time

One final note: When you are entering into a managed care contract, think about the rapidly evolving business landscape, and think about the future.  Should a dispute happen to arise, you will not be able to turn back the clock.  Time spent early on with counsel who are experienced in helping to craft managed care contracts may serve you well one day.

Published by DLA Piper LLP (US)
Copyright © 2014 DLA Piper LLP (US)
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