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After reform, Kaiser still in spotlight

Other insurers move toward the company's arbitration model even as critics say its changes haven't gone far enough.

June 30, 2003|Daniel Costello | Special to The Times

Six years ago, the California Supreme Court ruled that Kaiser Foundation Health Plan's system for arbitrating legal disputes was poorly regulated, prone to long delays and generally stacked against the best interests of Kaiser's members.

The court's harshly worded decision came in the landmark case of Wilfredo Engalla, a 51-year-old Filipino immigrant who claimed in a malpractice lawsuit that Kaiser doctors misdiagnosed him with colds and allergies for years before finally informing him he had terminal lung cancer.

The case went to private arbitration because Kaiser's policies require that all such disputes be settled outside public courtrooms. The giant HMO then took five months to select an arbitrator. Engalla died the next day. Soon after the Supreme Court ruling, Kaiser announced plans to overhaul its arbitration process in an effort to address criticism of its system. In 1999, the company created the Office of Independent Administrator, or OIA, to oversee the revamped program. The company promised the changes would dramatically speed up the resolution of cases, provide safeguards to ensure fair hearings, and address what some critics said was Kaiser's undue influence over the state's private arbitration system.

The question today is whether the reforms have made a difference. Are Kaiser patients who file malpractice claims better off today than they were six years ago?

The answer is more important than it may initially appear. Kaiser now covers 6 million Californians, or nearly a third of all privately insured people in the state. Roughly 1,000 Kaiser members file malpractice claims each year, alleging serious errors from surgical mistakes to misdiagnoses like Engalla's.

What's more, Kaiser is one of the nation's most influential health-care companies. To help cope with the rising malpractice insurance rates, more California insurers and physician groups are moving toward the insurer's binding arbitration model. And several states, including Texas and Florida, are studying Kaiser's program as they seek to revamp their medical malpractice systems.

Nearly everyone who follows such issues -- including consumer groups, medical providers, attorneys and state officials -- agrees that Kaiser has made significant progress in rectifying some of the issues highlighted in the Engalla case. For example, one of the harshest accusations made in the case was that Kaiser intentionally stalled the arbitration process because company lawyers knew that the potential judgment would be smaller if Engalla died before the case was heard. (Kaiser had denied that allegation.)

Compared with the old system, cases now move at lightning speed. According to the OIA's most recent annual report, released this spring, nearly all arbitrators are now appointed within two months; in the mid-1990s, according to Kaiser figures, it took nearly two years -- specifically, 674 days -- on average to appoint an arbitrator. Today, most cases are completed within a year.

There have been gains on other fronts too. Annual surveys by the OIA show that the majority of Kaiser members who have gone through the revamped arbitration process are satisfied with the process. And most observers agree that the OIA office operates without interference from Kaiser.

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Monetary difference

But some critics, including consumer group officials, arbitration experts, plaintiffs' attorneys and regulators, say the changes have not gone far enough. Also, a 2000 report issued by the state's independent auditor, the California Research Bureau, was highly critical of Kaiser's progress in addressing most of the problems identified in the Engalla case.

"I give Kaiser credit for the strides they have made so far," says Daniel Zingale, the former head of the California Department of Managed Health Care, who is now deputy chief of staff for Gov. Gray Davis. But "there's no question problems remain and that those problems need to be addressed."

Kaiser's mandatory arbitration system has been around since the 1970s. It requires that a private panel of up to three arbitrators, rather than a judge and jury, hear all claims. And, unlike courtroom procedures, hearings are held in a conference room and decisions cannot be appealed.

In general, more patients are likely to win a case in arbitration than in the courtroom. But plaintiff and defense attorneys estimate that monetary judgments in arbitration are only 50% to 60% as much as they might be in court. That's why companies like Kaiser defend the arbitration process so strenuously.

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More arbitrators sought

One of the biggest lingering concerns for Kaiser critics is that a relative few number of arbitrators continues to oversee a disproportionate number of cases. And because Kaiser is one of the state's biggest sources of employment for private arbitrators, it continues to wield considerable influence over the arbitration system, critics complain.

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