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Doctors Attempt 'No Sue" Clause

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Some doctors in New Jersey are now asking their patients to sign away their legal rights.

The American Association of Justice cites to Dick Dahl’s story published at LawyersUSA:

A group of New Jersey ob-gyns has begun asking prospective patients to sign away their right to a jury trial, touching off a debate about the enforceability of the waivers.

Citing the high cost of medical malpractice insurance, more than a dozen ob-gyns have joined Obstetricians & Gynecologists Risk Retention Group of America (OGRRGA), a new Montana-based company that is reportedly reducing their premiums by about 50 percent. As part of their participation in the group, these physicians are requiring patients to sign agreements stating that they will pursue any subsequent disputes through binding arbitration.

They also must agree that pain-and-suffering awards will be capped at $250,000.

The spokesperson for the physicians’ group, Ridgewood, N.J. ob-gyn Ruth J. Schulze, has been a longtime proponent of measures to reduce the cost of medical malpractice insurance. She’s pushed for legislation to limit the size of malpractice awards, and in 2005 she stopped delivering babies in order to reduce her premiums.

“The medical liability system is irrevocably broken and needs to be changed,” Schulze wrote in an op-ed article in a recent issue of a local newspaper, the Bergen County Record. “This crisis has been escalating over the last decade with Bergen County losing more than 30 percent of its practicing obstetricians in the last five years.”

A new kind of medical insurer

OGGRGA is a non-traditional insurance group that meets the requirements of a the federal Liability Risk Retention Act of 1986, allowing the creation of self-funded groups with the power to write insurance in all 50 states without having to comply with the insurance laws and regulations in each state.

Since these entities need to be licensed in just one state, they can often operate by a looser set of regulations. For example, Montana law imposes a minimum capital requirement of $750,000 – far less than the $4.2 million minimum in New Jersey.

Eric S. Poe, a lawyer with NJ-PURE, a New Jersey medical malpractice insurer, said the federal statute was intended to provide a means for companies to reduce their insurance costs – not as a mechanism to resolve medical disputes involving individuals.

“It was created to [help] commercial entities that wanted to create their own insurance without having to go to an insurance company,” he said. Congress “never anticipated that risk retention groups would be used to start medical malpractice insurance carriers.”

The Montana group’s pitch to physicians is that it is able to keep their premiums low because of its binding arbitration requirement, which it calls “the heart” of its program.

But is a contract that calls for the signer to waive the right to a jury trial enforceable?

Alive and well elsewhere

Jeffrey S. Badgley, a medical malpractice defense lawyer in Winter Park, Fla., points out that the use of arbitration agreements has expanded throughout the country as a way to reduce tort damages.

“This is a program to come up with a more rational and reasonable way of resolving disputes between physicians and patients,” he said. “The tort system has produced some very unsatisfactory results. It’s expensive, it’s time-consuming, and oftentimes patients must sacrifice half of the money given them by juries.”

Badgley cited California as a state where medical insurers have required binding arbitration for years.

Eugene A. Rosov, OGGRA’s president, said that Kaiser Permanente, a large health insurer, has required patients to agree to binding arbitration for years.

“Apparently, they haven’t run into any significant problems,” he said.

He also noted med-mal lawyers are thriving in spite of the new agreements, since arbitrations are frequent and provide rapid payouts.

Redwood City, Calif., attorney Michael J. Brady, who administers the Kaiser Permanente program, predicts growth of arbitration requirements nationwide.

“Since the year 2000, the U.S. Supreme Court has decided three cases dealing with the scope of the Federal Arbitration Act,” he wrote on the OGGRA website. “The essence of these cases says this: the [Act] is supreme. … The effect of the U.S. Supreme Court decisions means that it will be very difficult for a state court to find that a private arbitration contract is unconscionable.”

But others are doubtful.

A different story in NJ?

Poe believes the arbitration clauses work in California because the state already has a $250,000 cap on non-economic damages, which limits the effect of arbitration. He also noted that California is the only state he’s aware of that requires “statutory notice forms” that explain arbitration agreements to patients. He said that in his opinion the absence of notice requirements in New Jersey will render the agreements unenforceable.

According to Jennifer Arlen, a professor at New York University School of Law, “Most jurisdictions have ruled that physicians and hospitals cannot require patients to waive their rights to recover damages for medical malpractice. One concern was that patients often would not be fully informed about these clauses in advance. Another was that patients might be contracting under duress. There was also the idea that tort liability is important for regulating medical care.”

Poe agrees these concrns will make the New Jersey agreements unenforceable.

“The patient has to know that there can be no repercussions of his or her choice not to sign,” he said. “These doctors are saying that if you don’t sign we may choose not to treat you. That’s clearly contrary to case law.”

Furthermore, he said New Jersey regulations on binding arbitration don’t cover consumer arbitration, “they talk about binding arbitration as something involving two commercial entities, not a doctor and a patient.”

In Poe’s opinion, “there’s no chance … these things are enforceable in New Jersey. I don’t think one trial lawyer in the state is worrying about binding arbitration [in the med-mal context] being enforceable.”

He also points to another enforceability problem: there’s a second party involved.

Most signers of these ob-gyn arbitration agreements are, presumably, pregnant women. Poe said that most states, including New Jersey, have a two-year statute of limitations for medical malpractice claims that begins to run when a patient knows or should have known he or she had been injured by malpractice or negligence.

But that statute of limitations wouldn’t apply to the baby. The statute of limitations on the child’s claim wouldn’t begin to run until he or she turned 18.

“Does a mother have a right to sign an arbitration agreement that binds the child?” asked Poe. “How can a child be giving up the right to a jury trial when he’s in the womb?”

But Schulze emphasized that if patients don’t want to sign the agreements they are free to seek medical help elsewhere.

“[B]inding arbitration may not be right for everyone and may not be appropriate for certain medical settings such as emergencies,” she told the Record, “but it is completely appropriate for each individual patient to make that personal decision.”

A program on the move

OGGRGA was created last year, and its website says it intends to operate in Florida, Illinois, Ohio, Connecticut and Maryland, in addition to New Jersey.

In Florida, the issue has already heated up. The Florida Medical Association is encouraging its members to get patients to sign waivers agreeing that they will limit non-economic damages to $250,000.

Frank Petosa, president-elect of the Florida Justice Association, said some physicians are already doing so.

“Unfortunately, the Florida Medical Association has made restricting the rights of patients in our state its primary focus,” he said. “These waivers are potentially illegal and they’re clearly unethical.”

Plaintiffs’ medical malpractice lawyer and M.D. Lee S. Goldsmith of Englewood Cliffs, N.J., doesn’t believe the arbitration contracts will hold up in the state’s courts. First, he said, the state requires doctors to have $1 million in insurance coverage, and he doubts whether physicians in risk retention groups can meet that.

Second, he said, “This is a contract of coercion. They’re saying, ‘If you want me to treat you, you have to sign this contract.’ Maybe it’s good business for the obstetricians and the insurance company, but it’s bad medicine.”

The lower premiums are based on the $250,000 caps, “but what happens if courts don’t honor them?” he asked. “If you have a brain-damaged child, that is a case that anyone would pursue very vigorously.”

New risk for doctors?

Poe believes the lower premiums will create some serious risk for doctors.

Because risk retention groups don’t need to comply with state insurance regulations, they are also not protected by state guaranty associations, meaning that if a group becomes insolvent the personal assets of the doctors are at risk.

Arlen, at NYU, argues that fighting against the tort liability system isn’t the best way to try to cut costs. She noted that a few years ago the medical group with the highest premiums was anesthesiologists.

“But instead of lobbying for tort reform, they did a study to see whether there were systematic things they were doing wrong that harmed their patients. They found that there were, and they fixed the problem – basically by adding some equipment that reduced … inattentiveness and inattention by anesthesiologists. As a result, their insurance rates plummeted, and today they have among the lowest insurance rates.”

Arlen suggested that other specialties take the same approach and look at their practices to find ways to reduce premium costs like the anesthesiologists did.

“There’s been too great an emphasis at trying to get out from under the tort system,” she said.

Rosov said that in selling plans to ob-gyns, OGRRGA seeks “commitments that they will improve their practices every single day to reduce the need for arbitration.

“My broad view is that there’s plenty of blame to go around for everybody, including lawyers and doctors,” he said. “Maybe what we’re doing is the wrong thing. I hope not; I pray not. But we do know there is a problem. We’re trying to fix a broken system.”

Questions or comments can be directed to the writer at: dick.dahl@lawyersusaonline.com