I think of myself as a fair, even an optimistic person. I believe in a limited version of the perfectibility of Man, in serving causes larger than yourself, in putting duty before self-interest, and, in short, in doing what is right rather than what is convenient, though I don't expect most people to act that way all the time. I believe that juries try their best, judges do the same, and that retired lawyers and judges who become Kaiser "neutral" arbitrators would, in a perfect world, function as unusually sophisticated unbiased finders of fact.

Then I wake up, and face a reality that experience with dozens of contractual medical malpractice arbitrations has forced upon me: Kaiser Permanente, with a reach that approaches half of the patients in California, has managed to convince the legislature and the judiciary to favor a system that no one of sound mind could believe reliably gives a fair shake to any seriously injured patient.  Specifically, though steps have been taken to speed up the process and partially limit costs, with minimal success, nothing has been done to mitigate the central, unavoidable evil that permeates this system and makes it intrinsically tilted in favor of the economically powerful defendant:   that the "neutral" arbitrator who determines the outcome invariably has a personal economic interest in the outcome, an interest that favors Kaiser Permanente, the ‘frequent user’ in the system.  Simply put, if you work as a neutral arbitrator, and you find against Kaiser too often, or for too large an amount, you’re going to find yourself unemployed.  If you find against any one plaintiff or plaintiff’s lawyer, the consequences are nil.

The civil court equivalent of the Kaiser arbitration setup would  be a system in which the defendant in a civil case had the power to extinguish the income of the judge in a bench trial if the judgment went strongly for the plaintiff, or if the defendant had the power to lay off jurors from their jobs if the plaintiff did well.

The classic analysis of the arbitration system in California begins with three false assumptions and goes downhill from there. Arbitrations, say the authors of the Arbitration Act and those appellate judges who buy the rationale, provides cheaper justice, faster justice, and more sophisticated justice to litigants than do jury trials, while lessening the work load of an overworked and underfunded State court system.

Until a couple of years ago, the arbitration process required each litigant to choose a party arbitrator, the party arbitrators then choosing the "neutral" arbitrator,  with the three arbitrators then comprising  a panel of "unbiased judges" who decided the case. Appearances aside, the litigants chose the neutral through compliant party arbitrators, and the neutral arbitrator and only the neutral arbitrator decided the outcome, as the party arbitrators were, and were expected to be, advocates for the side that had retained them. Each litigant paid the fees of its own party arbitrator, and the two sides shared the fee due the “neutral.”

In practice, arbitrations prove to be much more expensive than jury trials.  I completed a two week trial in Santa Monica last week.  I paid about $1,600 for jury fees, and another $1,200 or so to the court reporter.  In my last four-day arbitration with three arbitrators, I paid my own arbitrator $8,000 for his time, and another $4,000 to the neutral.  Granted, we got as much work done in those five days as we would have accomplished in two weeks with a jury, but the notion that arbitrations are cheaper than jury trials is nonsense.

Nor is the arbitration process particularly speedy. A civil court judge who wants his or her calendar to move along can set trial dates relatively early and can limit continuances. Further, the setting of the civil trial date is only minimally restricted by any one attorney's schedule, since judges recognize that most cases settle, so a lawyer’s crowded trial calendar may be illusory.   In arbitration proceedings, the gentleman’s (gentleperson’s) rule is that the setting of the arbitration dates must respect the trial calendar of all the participants.  As a rule, therefore,  for an arbitration to be set, you need to find a time interval in which five lawyers are free (the lawyers for the two sides, and the three lawyers who form the arbitration panel) and then, if a trial pops up to keep any one of the five from attending as scheduled, the process is deferred.  Civil judges don’t always share the legislature’s reverence for arbitration: as a rule, if they want the civil trial to go forward, they leave it up to the litigants to put off the conflicting arbitration.

Until recently, putting off the arbitration process was something of a profitable art form for Kaiser.  In California, unlike many other states, if you injure a patient, your exposure diminishes substantially if the patient dies before litigation is complete.  The legislature’s insight is that when a health care provider causes pain and suffering to an individual who survives through trial, that health care provider is responsible for the harm he caused, but if  that same health care provider causes even more pain and suffering, and kills the patient with his negligence, the tortfeasor’s responsibility for  the pain and suffering of the decedent is buried with the patient. 

Similarly, a physician must fully compensate a living individual he has injured through malpractice to the full extent of the economic loss.  But if that same physician causes a worse injury, so that the patient not only can’t work but also dies, the negligent doctor receives a discount on his liability, called “the self use of income by the deceased,” which reduces the recovery of lost earnings  by the surviving family by a factor representing that which the survivors would presumably not have been benefited by  if the patient had lived.  Such is the world according to MICRA, leading to the defense adage “if you harm someone with negligence, best to finish the job.”

Under  these rules, the profitability of delay becomes obvious.  Wait long enough for the injured person to die and your liability may be halved.  Kaiser played this to the hilt, in many cases,  delaying the “gentleperson’s” process of choosing a neutral arbitrator, for example, until the arbitration process itself often took longer than the civil trial process. Not until Kaiser got “too clever by half” and let Mr. Engalla die while it dithered over the choice of a neutral did the legislature begin to get the picture, and to set in motion the changes in the Kaiser arbitration system that led to the "ombudsman" structure now in place, or, more precisely, since the Ombudsman now is Sharon Oxborough, an extremely competent person I have found to be very fair, to the ombudswoman structure.

For several years now, in response to the Engalla case, there has been a central administrator, or ombudsperson, for Kaiser malpractice lawsuits.  This scheme purports to speed up the process of choosing a neutral arbitrator, lessen the cost of arbitrators, and prevent a small cadre of "repeatedly used neutrals" favorable to Kaiser from controlling the system.  Now, when a demand for arbitration is filed, a computer spits out a list of twelve potential neutral arbitrators.  Litigants receive information packets about each of the twelve candidates, of variable detail and accuracy, and they then submit their “ranking.” Each side may cross out four of the twelve candidates, eliminating them from consideration as the neutral arbitrator, and then ranks the remaining eight in order of preference. A computer then analyzes the two lists of eight, and picks out the arbitrator most favored or least offensive to the parties, and that person is appointed as the neutral arbitrator.

In addition, once the process has picked the neutral, the plaintiff may decide if he or she is willing to proceed with that person as a single arbitrator, rather than with the usual panel of three. If the plaintiff makes that election, the fees due the neutral arbitrator become the sole responsibility of Kaiser. Kaiser may agree to go with one arbitrator, or may elect to go with the three arbitrator panel, and if the choice is the latter, a three arbitrator panel is used, but regardless of this choice, the fees due the neutral come from Kaiser.  In practice, especially for large cases, Kaiser usually insists on a three arbitrator panel.

A couple of defense firms have become “professional party arbitrators,”  i.e. spend most of their work hours as Kaiser arbitrators. They have come to know the frequently used judges extremely well, and are, in effect, human reminders to the neutral arbitrators that Kaiser is the defendant in more than 95% of all medical malpractice arbitrations, and that if a neutral arbitrator falls into disfavor with Kaiser, his or her ability to earn a living as a neutral arbitrator can be extinguished in an instant.

The assumption of payment of the neutral arbitrator’s fees by Kaiser upon election by the plaintiff to proceed with a single arbitrator is one of the “reforms” designed to make the process less expensive to the plaintiff.  However, the law of unintended consequences comes into play. The potential influence on a neutral arbitrator of knowing that his or her fee will be paid entirely by Kaiser is not always clear, and probably varies from arbitrator to arbitrator. The fact that this influence may be real and pervasive is proved by the requirement that any plaintiff who elects to have a single arbitrator, hence displaces the payment of the fees of the neutral arbitrator onto Kaiser must sign a formal written acknowledgment that this was their decision.

What good does all this do to make the system fairer?  My prejudice is that it helps in minor matters, but only camouflages the central, unavoidable defect in the system.  Neutral arbitrators may be chosen faster than before, and some of the expense of litigation, namely half of the fees of the neutral arbitrator may be shifted to Kaiser, the chief beneficiary of the arbitration system.    But in the end, it is impossible to ignore the simple fact that the judge deciding the case has a personal financial interest in the outcome, because making Kaiser unhappy extinguishes the ability of that arbitrator to work in medical malpractice litigation, while displeasing the plaintiff has no economic effect on the neutral arbitrator at all. 

Before the ombudswoman, the process was clearer than it is now, though the lethal effect on objectivity of the danger of future lost earnings for the neutral arbitrator in deciding large cases was the same. In the past, when Kaiser and the plaintiffs simply had to agree on a neutral, Kaiser could explicitly reject a disfavored proposed neutral simply by saying “no” to the plaintiff’s offered list of possibilities.  Now, that same rejection of a disfavored proposed neutral comes as part of a computerized matching program, and is buried in a larger list of four rejectees.  The result is the same: come up with a seven figure judgment against Kaiser, and count on not being a neutral arbitrator again for some time, if not for good.

This is not to say that all judgments at arbitrations go against Kaiser.  I have been told by knowledgeable defense counsel that Kaiser’s desire is to avoid the very large judgments that civil litigants occasionally receive, and that in return for being essentially immune to large judgments, Kaiser does not mind losing the smaller cases.  These same defense counsel have told me that Kaiser may try cases it ordinarily would settle, knowing that a loss is probable, to produce statistics showing that Kaiser loses at arbitration as frequently as defendants lose at trial.  The bottom line, however, is this: the distribution of cases that Kaiser loses, when analyzed as a function of the amount of the verdict, is sharply skewed by the arbitration system “to the left.” The bell shaped curve of Kaiser arbitration losses centers over a much lower award figure, given the severity of the injury, than would be expected. And large judgments are exquisitely  and improbably rare.

Add into this analytic mix the comments made in moments of unguarded candor, anecdotal though they are; the neutral arbitrator who said to my party arbitrator several years ago “either this brain damaged child receives a couple of million dollars now, or I make that amount working for Kaiser over the next ten years, but both can’t be the case;” the ‘neutral’ arbitrator who commented to the party arbitrator “I got a call from our boss today,” naming the Kaiser executive who had spoken with him; the defense counsel who conveyed to me the fact that my small case with Kaiser was one that Kaiser had chosen to try and lose so as to make sure that there were statistics “validating” the system; the several cases in which I have served as a party arbitrator in the decision of which the ‘neutral’ clearly understood the weight of the evidence in favor of the plaintiff and then decided in favor of Kaiser and quickly left the room;  the comment by a judge who gave my firm a $900,000 judgment that “I guess I’m going to have a lot of time to go fishing now, but I just couldn’t sleep if I gave the judgment any other way;”  the statistics published by the State of California, showing that judges who give large judgments against Kaiser tend to disappear from the arbitration scene for a year or two, returning, to my observation, with substantially altered views of what constitutes liability, and you begin to have a picture of the workings and effects of a system to which Kaiser holds onto with great tenacity.

The courage some judges show in following their conscience is indeed inspiring. The problem is that the system requires judges to have courage and to practice self denial in order to be fair, when neither of these would be a factor in an unbiased judicial system.

Civil courts and juries have their own defects, to be sure. But in the end, a civil judge has a job and an income regardless of the outcome of any single case, and jurors go home and resume their lives unaffected economically by their decision.  The Kaiser system, ombudsperson notwithstanding, has changed the standard of proof that plaintiffs must meet, especially in cases involving major damages, from “the preponderance of the evidence” to  “I couldn’t sleep if I went the other way.”  As long as the neutral arbitrator’s economic future depends on pleasing one side and not the other, this system cannot possibly be fair or justified.  The initial promise of the Arbitration system has long been unfulfilled, and indeed cannot be fulfilled.   The system should be abolished.