Disputes Between Physicians and Plans Can Be Settled Without Costly Litigation

Mark D. Abruzzo, J.D.

Alternative dispute resolution refers to a variety of methods for resolving disputes without resorting to litigation. Arbitration and mediation are the most common methods of ADR, although there are variations.

ADR is not used nearly as much in health care as in many other industries. However, significant changes, along with ever-increasing regulation, have heightened interest in ADR. Surveys conducted by the National Health Lawyers Association reflect as much.

Lawyers who work for or represent hospitals, managed care organizations, and physicians are looking into alternative methods to resolve — among other things — disputes involving physician discipline, credentialing, peer review, and contracts.


Mediation is a process by which parties meet with a trained, neutral person (the mediator) to isolate contested issues, develop options, and consider settlement alternatives in an effort to reach an agreement that best accommodates the needs and interests of the parties. You might think of mediation as a process of supercharged negotiations.

It differs from litigation and arbitration in a number of ways. First, the parties are directly involved in the process. No resolution can be made without mutual agreement, and the mediator doesn’t have authority to make substantive decisions or to impose an outcome.

Second, the focus in mediation is not on the power or rights of the parties, but instead on the exploration and development of options that are not always available to either side through arbitration or litigation. Last, there is a recognition in the mediation process that the optimal solution may not turn upon, or even be defined by, how the dispute might be resolved legally.

The advantages of mediation are numerous. It is voluntary and you need not agree unless and until your needs are met; the process opens up lines of communication that are clogged by the formality and adversarial nature of litigation; you control the process, which eliminates the possibility of an unpredictable result; the process is private, confidential, informal, flexible, and user-friendly; you are more likely to comply with the terms of your negotiated settlement than with the decision of a third party; and there is usually greater satisfaction with the result.

Mediation is especially effective in situations where you want to establish an ongoing relationship with the other party and want a quick result, with matters resolved confidentially.

However, mediation will generally not be useful where one party seeks to establish legal precedence, stands to gain by a strategy of delay, or refuses to bargain in good faith. It also often doesn’t work when the parties are business competitors or discovery is needed to provide the parties with necessary information.


Arbitration is the hearing and resolution of a dispute by someone chosen by the parties or provided pursuant to an agreed selection procedure. There are a number of types of arbitration, the most fundamental distinctions being between binding and nonbinding, and mandatory versus voluntary.

In binding arbitration, the decision of the arbitrator is final (i.e., there is no right of appeal). In nonbinding arbitration, the decision serves an informational function but they are not required to accept it. Nonbinding arbitration can have binding features, should the parties agree. For example, they could decide that the losing side must pay legal fees if subsequent litigation does not result in materially different results.

In mandatory arbitration, the parties are required in advance — by contract — to submit to arbitration to resolve disputes. In voluntary arbitration, the parties agree to resolve a dispute or an element of a dispute by arbitration after the dispute has arisen.

In all forms of arbitration, procedural alternatives are available to fit the needs of particular industries and circumstances. Consequently, binding arbitration, with many of the procedural bells and whistles, can somewhat resemble litigation.

The primary advantage of arbitration, particularly binding arbitration, is the timeliness and economy of a resolution. A disadvantage is the psychological effect that arbitration can have on the loser, who sometimes feels that the dispute would have been resolved differently in court.

Several variations

Med-arb combines mediation with arbitration. The parties agree to use mandatory, binding arbitration to resolve a dispute if mediation does not produce settlement.

Arb-med also combines mediation and arbitration. In arb-med, the parties submit a dispute to mandatory, binding arbitration. The arbitrator does not disclose the award at the conclusion of the arbitration. Instead, the parties then submit to mediation. If the mediation is not resolved within a specified period, then the arbitrator announces the award.

Like any tool, to be effective, ADR must be applied correctly. Clearly, there are times when it is unlikely to be effective.

For example, the laws of supply and demand being what they are, managed care companies still have leverage over physicians. This leverage is used in the negotiation of contractual terms — including reimbursement — and is used in dispute resolution as well.

Delaying tactics

Many managed care contracts, if you stop to read that fine print, prohibit physicians from suing for consequential damages and require litigation to be fought in some jurisdiction far from the physician’s practice or place of employment. This leaves the physician with little leverage. Hence, the company has little incentive to agree to alternative dispute resolution.

Nonbinding ADR can, in effect, be used as a tool by a party with deeper pockets seeking to prolong the dispute, thereby generating costs for the other party. A party lacking financial resources and looking for timely resolution is unlikely, for example, to survive a dispute that involves mediation or nonbinding arbitration and then, eventually, litigation.

These instances notwithstanding, ADR can make tremendous sense in the health care industry. Because the parties in ADR control their destiny, they can ensure that their disputes are resolved by experts with knowledge in the field. While there are certain specialized courts — e.g., tax, bankruptcy, and orphan’s court — the ordinary health care dispute would be decided in a court of general jurisdiction where the judge is not an expert in health care matters.

However, the parties could, for example, submit their binding arbitration to the National Health Lawyers Association, which offers a dispute-resolution service staffed by people experienced in health care.

Last, the total value of claims submitted to arbitration under the auspices of the American Arbitration Association last year was in the neighborhood of $5 billion. My guess is that the parties to those claims disputes saved, collectively, around $500 million, maybe more, by not submitting those claims to litigation. It follows that the industry, as a whole, stands to save through the use of ADR.

Thus, there certainly would seem to be enough incentive for managed care companies and physicians to explore the use of ADR, even if only in certain situations.

Mark D. Abruzzo, J.D., specializes in health care law at the Berwyn, Pa.-based law office of Wade, Goldstein, Landau & Abruzzo.