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Nov 20, 2015

Procedural Due Process in Consumer Healthcare Arbitrations in California

By: Komal Chokshi

Although arbitration tends to offer efficiency and cost-savings over litigating in courts, parties are often still concerned about whether there are enough procedural safeguards in place to make the arbitration process fair and just.  This is particularly true in consumer arbitrations.  This article will look at both the law in California as well as other safeguards used to assuage due process concerns in consumer healthcare arbitrations.

California Statutes and Cases Addressing Due Process in Arbitration

Procedural due process in consumer arbitration clauses was addressed in Armendariz v. Foundation Health Psychcare (2000) 24 Cal.4th 83, which deals with employee arbitrations.  There are 5 factors cited to in Armendariz to serve as a framework for analyzing the conscionability of a particular arbitration provision.  The arbitration agreement must:

1) provide for a neutral arbitrator,

2) provide for more than minimal discovery,

3) require a written award,

4) provide for all the types of relief that would be available in court, and

5) not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition for accessing arbitration.

Armendariz did not relate specifically to healthcare arbitrations, but provides some guidance concerning what types of healthcare arbitration agreements may pass muster under California law.  The principles articulated in Armendariz are also reflected in the policies and protocols of several administrators of arbitration (see below).

The California Arbitration Act, through Code of Civil Procedure section 1295, requires certain language in consumer health care arbitration clauses.  1295(a) requires the following language in the first article of the contract:

                "It is understood that any dispute as to medical malpractice, that is as to whether any medical services rendered under this contract were unnecessary or unauthorized or were improperly, negligently or incompetently rendered, will be determined by submission to arbitration as provided by California law, and not by a lawsuit or resort to court process except as California law provides for judicial review of arbitration proceedings. Both parties to this contract, by entering into it, are giving up their constitutional right to have any such dispute decided in a court of law before a jury, and instead are accepting the use of arbitration."

1295(b) requires the following language (in at least 10-point, bold, red type) Immediately before the signature line:

                  "NOTICE: BY SIGNING THIS CONTRACT YOU ARE AGREEING TO HAVE ANY ISSUE OF MEDICAL MALPRACTICE DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP YOUR RIGHT TO A JURY OR COURT TRIAL. SEE ARTICLE 1 OF THIS CONTRACT."

California's Knox-Keene Act also provides several safeguards for the consumer.  California Health and Safety Code section 1363.1 requires health care plans to disclose to enrollees any requirement that binding arbitration must be utilized to resolve care-related disputes.  Section 1373.20 requires the health plan requiring arbitration to cover certain costs and fees if the consumer is able to demonstrate hardship.  California Department of Managed Care (DMHC) oversight of consumer health care arbitrations may also provide some protection to consumers since the DMHC requires health plans to submit reports of arbitration decisions and consumer complaints.

Procedural Due Process Efforts by Organizations Administering Arbitrations

American Arbitration Association (AAA):  In 2003, the AAA announced that it would not administer healthcare arbitrations between individual patients and health care providers that relate to medical services (i.e. medical malpractice suits) absent an agreement between the parties to submit the dispute to arbitration after the dispute arose.  This policy only applies to disputes involving consumers and does not apply to disputes between healthcare providers and payors.  This policy is based on the "Healthcare Due Process Protocol" developed jointly by the American Arbitration Association, American Bar Association, American Medical Association and Commission on Health Care Dispute Resolution.  Principle 3 of the Protocol is entitled "Knowing and Voluntary Agreement to Use ADR" and provides:  "The agreement to use ADR should be knowing and voluntary. Consent to use an ADR process should not be a requirement for receiving emergency care or treatment.  In disputes involving patients, binding forms of dispute resolution should be used only where the parties agree to do so after a dispute arises."

Judicial Arbitration and Mediation Services (JAMS) :  JAMS does administer consumer healthcare arbitrations involving pre-dispute agreements to arbitrate.  Like other consumer arbitrations JAMS administers, consumer healthcare arbitrations are subject to "JAMS Policy on Consumer Arbitrations Pursuant to Pre-Dispute Clauses Minimum Standards of Procedural Fairness."  These procedures require minimum notice, availability to all remedies available under the law, a neutral arbitrator, availability of discovery and a written statement with the award. The consumer is also only required to pay $250 to initiate an arbitration.

Arbitration clauses involving consumers of healthcare services must be carefully drafted in order to meet the requirements of (1) the Armendariz case, (2) the California Arbitration Act, (3) the Knox-Keene Act (in some instances) and (4) the organization administering the arbitration.  In addition, the clause would also be subject to any general, consumer due process requirements imposed by the law and the arbitration administrator.