The nation's largest health maintenance organization on Tuesday announced the hiring of an outside administrator to run its much-maligned private system for resolving benefits disputes and medical malpractice claims.
The decision by Kaiser Permanente to hire a "neutral" manager comes amid a national debate on reforms in the managed-care industry.
Kaiser also revealed that it had settled an embarrassing case in which the California Supreme Court criticized the HMO last year for allegedly delaying arbitrating the case of a patient dying of lung cancer to save hundreds of thousands of dollars.
It was this case that prompted Kaiser to hire Los Angeles lawyer Sharon Lybeck Hartmann to take over a program the HMO has administered--and defended--for 25 years. Patients' lawyers, consumer advocates and even the high court have said that Kaiser's private system of binding arbitration was biased against its patients.
During the next two months, Hartmann will assemble a panel of 200 arbitrators across the state to handle claims against Kaiser.
"We are here to create a neutral arbitration system with the widest pool of qualified arbitrators," Hartmann said. "Nobody has ever administered an arbitration system like this, where it does not itself supply the arbitrators."
Hartmann and her 15-lawyer firm have monitored several high-profile civil rights settlements. The most prominent was a class-action suit involving discrimination against African Americans at Denny's restaurants.
The firm will earn about $2 million under a two-year contract with Kaiser.
Even as Kaiser hailed the appointment of Hartmann as a model for a neutral arbitration system, consumer advocates said the change was a minor improvement to a discredited program. Kaiser, they said, still denies its 6 million California members the right to resolve their disputes in court. The HMO requires all its enrollees to arbitrate disputes.
Many health insurers prefer mandatory arbitration, in which cases are heard behind closed doors by private judges and awards are often significantly less than those given by juries.
Some state and federal legislators favor giving patients the right to take their disputes to court. Versions of that legislation are expected to resurface when lawmakers return to work. In California, Gov.-elect Gray Davis has vowed to sign such legislation.
Kaiser's decision to revamp its arbitration system came after the state high court criticized the Oakland-based HMO last year for running a system in which it would allegedly stall cases for its own benefit. The justices were ruling in a case involving Wilfredo Engalla, a San Francisco Bay Area accountant who alleged that Kaiser doctors failed to diagnose his lung cancer for about five years. Engalla was terminally ill when he filed his case in 1991. He died a day after an arbitrator was named to hear his dispute.
His lawyers accused the HMO of delaying the appointment for five months, charging that the delay reduced the amount of potential damages by as much as $250,000.
Senior Kaiser executives said the HMO and lawyers for the Engalla family agreed to settle the case out of court for an undisclosed sum.
The Engalla opinion prompted Kaiser in January to accept a blue-ribbon panel's recommendations to, among other things, do away with its self-administered arbitration program.
Under the new system, patients with claims against Kaiser could choose from a list of 10 arbitrators. Their attorneys would also be told how many Kaiser cases those arbitrators presided over and what their decisions were.
Under the current system, Kaiser lawyers were allowed to select arbitrators and could potentially manipulate the process by picking a private jurist who would be unavailable to hear the case--thereby keeping a patient waiting for months.
Plaintiffs' lawyers have argued that because some arbitrators relied on Kaiser for business, they were less inclined to make large awards against the HMO.
But Hartmann, a former Agoura High School English teacher-turned-lawyer, said that is about to stop.
"People selecting arbitrators will have far more information than they do in any other system," she said. "The guarantee [for fairness] is lots of information."
Even before Kaiser officially announced changes to its arbitration system, consumer rights advocates released statements condemning the company's efforts.
Jamie Court, director of Consumers for Quality Care, a Santa Monica-based watchdog group, said his group plans to make a new push for legislation guaranteeing that patients are not forced into binding arbitration.
Court said Kaiser and other HMOs should heed a report by an influential group that in August recommended ending mandatory arbitration of patients' health-care disputes in favor of a voluntary system.
The panel said an HMO member should have the right to choose arbitration or to take a dispute to court. The report was prepared by a joint committee of the American Bar Assn., the American Medical Assn. and the American Arbitration Assn.
"Kaiser may put a pretty face on its private justice system," Court said, "but until the HMO gives consumers the choice to go before a jury, Kaiser will not have endorsed genuine reforms where HMOs are accountable before civil society and its institutions."
Times staff writer Jeff Leeds contributed to this report.