Two Key Reasons to Use an Arbitration Agreement in Your Medical Practice

Arbitration Agreement in Your Medical Practice
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A malpractice carrier recently emailed its policyholders that the carrier would no longer provide arbitration agreement templates confusing doctors into thinking that arbitration agreements are invalid. I contacted the carrier, and the carrier explained that their reasoning was that an arbitration could cost as much as litigation. Doctors pay malpractice insurance coverage premiums to protect the practice in the event of a malpractice claim resulting in arbitration or litigation. You pay the same premium whether or not you use an arbitration agreement or not. Indeed, your insurer has a duty to defend you should a claim be made against you – whether it ends up in arbitration or litigation. Whether litigation or arbitration will cost more or conclude faster may be unknown. Some experts opine that litigation costs more and takes longer than arbitration, while others conclude the opposite.

So, no, arbitration agreements are not per se invalid. They can be invalidated when they are not drafted properly (including ambiguities, vagueness, unconscionable clauses, etc.), or when there is coercion to sign, or the patient lacks capacity. If you work with a health care lawyer to draft an arbitration agreement that complies with legal requirements and the patient signs in a proper fashion, then the agreement should not be invalidated. However, new cases come out and laws change, so it’s important to have yours reviewed on an annual basis.

Regardless of where your case ends up and how much it costs, there are two immediate benefits to using arbitration agreements with patients.

No. 1: Privacy

Arbitration helps to keep the malpractice claim private. If you have a valid “Binding Arbitration Agreement” in place with a patient, then a patient who attempts to bring the dispute to a court can be stopped and compelled to arbitrate by order of the court almost immediately upon you objecting to the case being before the court. As such, when a dispute arises under a binding arbitration agreement, the plaintiff will have to notify you of the dispute (usually by sending a letter or email to you). So long as the arbitration agreement includes an appropriate “confidentiality of arbitration” clause, the arbitration proceedings will be confidential and, thus, kept out of the public domain.

On the other hand, if your agreements with patients do not require arbitration, then you would probably receive first notice through an intent to sue letter, and if you don’t settle and pay, then the plaintiff files a lawsuit against you in court. The court case is immediately public, and customarily is searchable through Google, showing up as [patient’s name] v. [Dr. your name]…[and showing the claim of: professional negligence, among other plausible claims].

With binding arbitration, the matter can be settled privately (no public filing) and you can even settle with a confidentiality provision and the arbitration award and proceedings can also be private. However, I must mention that you have to report claims over $30,000 to the Medical Board of California no matter where they are adjudicated or if they are settled.

No. 2: Deterrent

Arbitration also serves as a deterrent to pesky trivial cases in which a plaintiff could sue you in small claims court. Both litigation and arbitration are expensive, except for matters under $10,000, which may be litigated by lay people in small claims court. If there is a binding arbitration agreement, you have the right given by the California Code of Civil Procedure Section 1281.2 and Federal Arbitration Act Section 4 (9 U.S.C. § 4) to demand that the small claims court stay the case and compel arbitration of the suit – which the small claims court is required to do in almost all instances.

“This is a strong shield to the patient suing you not only in small claims court, but in any court,” says Timothy Mills, a senior litigation attorney with Aliant LLP, with over 30 years of experience enforcing arbitration agreements in courts throughout the United States.

With respect to California small claims court cases, it also should be noted that, by law, small claims parties cannot be represented by an attorney unless the attorney is an officer or employee of the business. You may have the office manager or COO appear representing the business. But it is very likely that you nevertheless would need to appear as a witness. As such, it’s wise to deter patients from wasting your valuable time and resources in small claims courts. If a patient demands under $30,000, the patient still might sue you for $10,000 in small claims court and forgo the rest.

Plaintiffs’ medical malpractice lawyers generally will not be interested in representing the patient unless the matter is at least a six-figure case or the case is at least above the $30,000 threshold that requires notification of the MBC because then plaintiff malpractice lawyers would consider that they have leverage and can get a swift settlement, raking in their fee of one-third of the recovery. Thus, patients are usually left with no choice but to self-represent with these smaller claims. In such event, it would follow that patients may be compelled by circumstances to walk away from an arbitration because of the intimidating effects of the cost coupled with the prospect of self-representation. These circumstances are less of an obstacle to patients in small claims court lawsuits. Accordingly, arbitration agreements could help in sweeping away some of these modest claims.

In addition to the two main points above, it is my opinion that arbitration agreements may be fashioned in ways that make them more efficient and less costly than litigation. Your malpractice carrier only cares about costs. However, as counsel to medical practices and medical spas, I care about my clients’ privacy in preventing these difficult patients from blasting the medical practice online and distracting my clients from the practice dealing with small claims actions. As such, please consider using a patient arbitration agreement in your medical practice, drafted by your healthcare lawyer who knows and understands your medical practice.

To summarize, although anyone can start a lawsuit for practically anything in California, having binding arbitration agreements in place with patients provides real protections against patients hauling you into court.

“If the patient ignores the arbitration agreement and attempts to bring you to court, then practically the first thing you should do is direct your litigation defense counsel to file a motion to compel arbitration. As a matter of law, the motion to compel must be decided by the court at the very start of the court case,” says Mills. “Upon the court directing the parties to summarily proceed to arbitration in accordance with the terms of the arbitration agreement, the court case on the merits is effectively over before it has begun.”

At that point, you should confer with your litigation defense counsel concerning whether you should ask the court to grant you reimbursement of attorney’s fees and costs as sanctions against the patient for having frivolously brought the case to court instead of proceeding to arbitration. You may also wish to ask your litigation defense counsel whether to ask the court to seal the court record so as to preserve the confidentiality of the dispute. Finally, it’s also worth mentioning that many dispute resolution clauses include a provision for mediation, which is advised to help propel a settlement, rather than waiting around for adjudication at an arbitration or in court.

Suzanne Natbony

Suzanne Natbony is a licensed California healthcare lawyer, and partner at Aliant LLP, practicing transactional and regulatory-compliance law, while also being an entrepreneur with her own healthcare product company. She is also general counsel to a multistate medical spa franchise and other medical spas and physicians around the U.S.

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