Merritt Personal Lines Manual: The Mechanics of HMO Claim Settlements

Most HMO disputes are handled -- at least initially -- by arbitration. The arbitration body is paid a daily rate that typically ranges from $750 to $1,200, with the process itself usually lasting from one to three days. All parties agree to abide by the decision instead of litigating.

But patients-rights advocates contend that many times, consumers don't even realize that they've locked themselves into arbitration. And increasingly, the courts have shown that they, too, are concerned about the fairness of forced arbitration in managed care contracts.

"When it comes to negotiating an agreement, individual consumers are not in the same place as large health plans" and often simply swallow whatever is written into a standard contract, said Peter Lee, an attorney and director of consumer-protection programs at the Los Angeles-based Center for Health Care Rights.

So, he explained, the courts and others look for ways "to have those scales more balanced."

In June 1997, in a case involving Kaiser Permanente, the state Supreme Court ruled 6-1 that HMO members could file lawsuits if they demonstrated that their health plan's arbitration system was unfair. In a blistering decision, the court attacked Kaiser for intentionally delaying the selection of arbitrators and otherwise manipulating the process for its benefit.

Among other things, the court pointed to one of Kaiser's own surveys, which showed that arbitrators weren't appointed for an average of 674 days -- almost two years after a patient had asked for one.

In its contracts, Kaiser (the largest HMO in California) had promised to name an arbitrator within 60 days of a patient's demand.

In response to the ruling, Kaiser announced an overhaul of its arbitration system. The company, which for more than two decades had operated an in-house arbitration process, began using an independent system like those used by competing health plans.