Commercial & Healthcare Dispute Trends, Drafting Tips & Initiatives

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1 Commercial & Healthcare Dispute Trends, Drafting Tips & Initiatives Michelle M. Skipper, Vice President, AAA Charlotte, North Carolina Andrew Barton Vice President, AAA San Antonio, Texas Jonathan Herman Herman Law Firm Dallas, Texas

2 Overview Review B2 B Commercial ADR Trends AAA Healthcare Services Recent AAA Initiatives Review B2B Healthcare ADR & Litigation Trends Drafting Tips

3 More than 60% of $1M+ Cases are Resolved by One Arbitrator One vs. Three Arbitrators Commercial cases in 2016 with claims/counterclaims of $1,000,000+ Three Arbitrators 38% One Arbitrator 62%

4 Claim Range Settled Cases are Resolved Much Quicker than Awarded Cases $1 million and Above $500K - $999K Settled Over $75K - $499K Awarded (one arbitrator) Up to $75K Median Days from Filing to Settlement or Award

5 Claim Range Settling Saves Money $1 million and Above $10,184 $38,816 $500K - $999K $3,200 $20,550 Settled Over $75K - $499K $1,750 $7,800 Awarded (one arbitrator) Up to $75K $500 $1,000 $0 $10,000 $20,000 $30,000 $40,000 Median Arbitrator Compensation in Dollars

6 % of Settled Cases With No Arbitrator Compensation Incurred More than 30% of Parties Who Settle Incur No Arbitrator Compensation 50% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 40% Up to $75K Over $75K - $499K Claim Range 36% 31% $500K - $999K $1 million and Above

7 AAA/ICDR Commitment to Diversity % of AAA/ICDR roster that is diverse 24% % of Cases with a diverse panel 26% 0% 5% 10% 15% 20% 25% 30% Percentage of Panel/Appointments

8 Emerging Trends in Managed Care Litigation Month Trend of New Claims Filed Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 BCBS Aetna United Humana CIGNA *Source: Managed Care Litigation Update, with permission

9 Emerging Trends in Managed Care Litigation New Claims Filed, 3rd QTR 2017, by U.S. Circuit 9, 6% 0, 0% 8, 5% 29, 20% 17, 12% 1, 1% 3, 2% 42, 28% 28, 19% 3, 2% 8, 5% First Second Third Fourth Fifth Sixth Seventh Eighth Ninth Tenth Eleventh *Source: Managed Care Litigation Update, with permission

10 Emerging Trends in Managed Care Litigation New Claims Filed, 3rd QTR 2017, by Health Insurer 5, 3% 18, 12% 17, 12% 14, 9% 94, 64% BCBS Aetna United Humana CIGNA *Source: Managed Care Litigation Update, with permission

11 Emerging Trends in Managed Care Litigation New Claims Filed, 3rd QTR 2017, by Claim Type 34, 23% 2, 1% 8, 5% 6, 4% 48, 33% Subrogation Member Facility Physician Repayment Other Service Provider Plan Sponsor 22, 15% 28, 19% *Source: Managed Care Litigation Update, with permission

12 AAA Healthcare Services AAA Healthcare Advisory Council Mission: Allow healthcare professionals to lend their expertise in fostering and developing dispute resolution solutions for the healthcare industry. Includes industry stakeholders such as Providers, Payors,(Inhouse & Outside Counsel) Includes major HC Trade Associations such as: AMA, AHA, AHIP, Pharma, BioTech Advocates representing HC clients and Full-time HC neutrals

13 AAA National Healthcare Panel Specific Criteria/Qualifications Healthcare Business Executive: Minimum of 10 years healthcare experience with at least 7 years in one or more senior-level positions of a healthcare industry company, firm or organization. Includes Physicians, Nurses, Allied Health Professionals, CEO s, CFO s, and Consultants. Legal Professional: Attorney with a minimum of 10 years in legal practice with at least 30% of practice for the past 10 years devoted to the practice of Healthcare Law. Includes In-House and outside counsel with major healthcare trade associations, hospitals, health plans and health systems. Judges: Minimum of 10 years State Court or Federal Court experience. Required Training Required Mediation and New Arbitration Training On-Going annual ADR Training Parties can choose non-aaa arbitrators/mediators to serve.

14 AAA Rules & Procedures Healthcare Payor Provider Arbitration Rules, revised 2015 Commercial Arbitration Rules, revised 2013 Appellate Procedures, 2015 Mediation Procedures On Going Review of Rules and Procedures

15 AAA Limited or Full Case Administration Full Case Administration includes: Cases in excess of $500K administered by Regional Offices (over 20 offices), Vice President or Regional Directors, Advanced degrees or Lawyers Benefits: Regions are familiar with user and neutrals Customize each case to meet parties needs Access to AAA Mediator /Arbitrator Search Platform (free)

16 AAA Limited or Full Case Administration Limited/ A La Carter Services includes: Financial Administration Services Arbitrator Select List Only and Arbitrator Select List and Appoint ediscovery/ Special Master Select Arbitrator Challenge Review Procedures for Non- Administered Arbitrations Judicial Settlement Conference Optional Appellate Arbitration Rules Visit:

17 AAA Fees AAA Fees Standard & Flexible Fee Schedules Claims and Counterclaims pay a filing fee based on the claim amount No filing fee to defend a Demand AAA fees are published, transparent not hidden in Neutral Compensation/Expenses Arbitrator Compensation and Expenses Arbitrators are independent and set their own fees (Hourly, daily, study, hearing, travel, cancellation AAA does NOT retain any portion of an arbitrators /mediators compensation/expenses. Some ADR providers retain anywhere from 18% up to 50%

18 Payor/Provider cases account for around 75% of caseload

19 Payor/Provider cases have slightly higher claims but fewer counteclaims than nonpayor/provider cases $1,800,000 $1,600,000 $1,400,000 $1,654,453 $1,441,083 24% 30% 25% $1,200,000 20% $1,000,000 $800,000 $600,000 10% 15% 10% Median Average % of cases with counterclaim $400,000 $200,000 $211,477 $194,000 5% $0 Payor/Provider Non-Payor Provider 0%

20 Payor/Provider cases settle around 90% of the time Settled/Withdrawn % for Healthcare Cases (based on cases closed in 2016) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 94% Payor/Provider 89% 70% Non-Payor Provider 68% Under $500K $500K+

21 Payor/Provider counterclaims are larger but less frequent Healthcare Counterclaim Amounts (based on counterclaims perfected in 2016) $3,000,000 $2,644,115 $2,500,000 $2,000,000 $1,500,000 $1,555,402 Median Average $1,000,000 $500,000 $350,000 $294,808 $0 Payor/Provider Non-Payor Provider

22 A Grade is much quicker than the median Filing to Award - In Months (based on healthcare cases awarded in 2016) Under $500K "A" Grade/Top 10% 4 Under $500K Median 9 $500K+ "A" Grade/Top 10% 10 $500K+ Median

23 Getting an A results in significant cost savings Arbitrator Compensation (based on healthcare cases awarded in 2016) Under $500K "A" Grade/Top 10% $1,000 Under $500K Median $8,725 $500K+ "A" Grade/Top 10% $22,795 $500K+ Median $46,475 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000

24 More than 80% go with one arbitrator Percentage of cases with claims of $500K+ that proceed to award with one arbitrator and the highest claim with one arbitrator 83% 81% 73% 74% 55% % % 80% 70% 60% 50% 40% 30% 20% 10% 0% Highest Claim (in millions of dollars) Single Arbitrator %

25 Grade A cases settled in a little over a month Filing to Settlement - In Months (based on healthcare cases settled in 2016) Under $500K "A" Grade/Top 10% 1.3 Under $500K Median 6.8 $500K+ "A" Grade/Top 10% 2.4 $500K+ Median

26 Almost half of cases with claims under $500K settle without incurring arbitrator compensation % of Cases Settled Without Incurring Arbitrator Compensation (based on cases settled in 2016) 48% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Under $500K $500K+ 29%

27 Arbitrator Compensation (based on cases healthcare cases settled in 2016) Under $500K "A" Grade/Top 10% $500 Under $500K Median $1,785 $500K+ "A" Grade/Top 10% $2,238 $500K+ Median $7,700 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000

28 Diverse panelists are appointed about 1/3 of the time Appointment of Diverse Panelists (based on appointments on healthcare cases in 2016) Mediation 33% Arbitration 30% 0% 5% 10% 15% 20% 25% 30% 35%

29 Venue, Cost Assessment and # of Arbs provisions frequently seen in all healthcare cases Arbitration Provisions in Healthcare Cases (based on cases awarded in 2016) Negotiation/Executive Meeting Venue Costs Assessment # of Arbs Form of Award Discovery Mediation Attorney Fees (Prevailing Party) 15% 86% 63% 67% 60% 43% 63% 49% 10% 29% 11% 21% 13% 15% 8% 41% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Payor/Provider Non-Payor/Provider

30 FLAWED ARBITRATION CLAUSES 30 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

31 W HAT DO PARTIES EXPECT FROM ARBITRATION? Fair and efficient process Minimal court intervention in a private proceeding Process will result in a meaningful, fair and enforceable outcome Arbitrator(s) with final decision-making authority 31 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

32 EFFECTS OF POORLY DRAFTED ARBITRATION CLAUSES: Failure to meet the parties expectations 32 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

33 EFFECTS OF POORLY DRAFTED ARBITRATION CLAUSES: Failure to meet the parties expectations Likely costly delays, inefficiencies and unnecessary court intervention 33 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

34 EFFECTS OF POORLY DRAFTED ARBITRATION CLAUSES: Failure to meet the parties expectations Likely costly delays, inefficiencies and unnecessary court intervention Arbitral process is blamed not the poorly drafted clause 34 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

35 DRAFTING A GOOD, SENSIBLE ARBITRATION CLAUSE 35 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

36 THE STANDARD AAA COMMERCIAL ARBITRATION CLAUSE Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. 36 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

37 W HY INCLUDE THE STANDARD AAA CLAUSE? PRACTICE TIP #1 Rely on Standard Language Provides options typically included in well-drafted arbitration agreements. Citing AAA rules makes it clear that disputes regarding arbitrability may be submitted to the arbitrator. Invoking applicable set of rules eliminates ambiguity. 37 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

38 POLLING QUESTION ONE: IS THIS A W ELL DRAFTED CLAUSE? Prior to commencing arbitration the parties must first attempt to settle the matter by means of good faith negotiation with senior management. If unresolved in negotiation, the parties must submit the dispute to mediation. Failure to submit the dispute to either negotiation or mediation shall result in all claims being deemed void. Conditions Precedent 38 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

39 W HY INCLUDE THE STANDARD AAA CLAUSE? PRACTICE TIP #2: Setting Deadlines Establish deadlines for the completion of each step of a multi-tiered dispute resolution process. Require that mediation be conducted in accordance with an established set of rules. Grant the arbitrator, after their appointment, the authority to resolve disputes as to whether a condition precedent has been met. 39 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

40 POLLING QUESTION TW O Is requiring that arbitration be conducted in accordance with the Expedited Rules a good approach to reducing costs? All disputes regardless of the amount in controversy shall be resolved in accordance with the AAA s Expedited Procedures. 40 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

41 W HY INCLUDE THE STANDARD AAA CLAUSE? PRACTICE TIP #3: Specifying Procedures Use of a specific set of procedures, such as Expedited or Documents- Only: In accordance with the ADR provider s rules; or Based on the amount of the controversy; or By mutual agreement of the parties post-dispute Documents-only proceeding mandatory unless a party requests an oral hearing and the arbitrator determines one is necessary 41 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

42 POLLING QUESTION THREE Is this a good approach to determining the locale? This slide has been intentionally left blank. 42 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

43 W HY INCLUDE THE STANDARD AAA CLAUSE? PRACTICE TIP #4: Locale of the Hearings Specify a city and state Specify several cities from which the filing party can choose Specify a locale that is not vague, e.g., the locale will be the city identified in the contract as the nonfiling party s headquarters 43 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

44 POLLING QUESTION FOUR An arbitrator shall be selected by the parties in accordance with the AAA rules. Will one arbitrator be appointed if the claim is more than $1,000,000? 44 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

45 W HY INCLUDE THE STANDARD AAA CLAUSE? PRACTICE TIP #5: Number of Arbitrators Specify a single arbitrator shall be appointed, even for disputes with claim amounts that would normally be heard by three arbitrators under the applicable AAA rules. Set a higher threshold for a three-arbitrator panel than the AAA rules provide for (e.g., claim amount of $5 or $10 million). 45 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

46 POLLING QUESTION FIVE AAA shall not appoint an arbitrator who is not mutually acceptable to the parties. Can an arbitrator be selected if a party is refusing to participate? 46 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

47 ARBITRATOR SELECTION PRACTICE TIP #6: Arbitrator Selection The process for selecting an arbitrator should address all foreseeable contingencies and be carefully worded to avoid a host of costly and time-consuming surprises. Using the chosen ADR provider s selection process avoids ambiguity. 47 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

48 POLLING QUESTION SIX Each party shall select a non-neutral arbitrator and retired judge Jane Doe shall serve as the neutral chair. Is this an acceptable way to identify who must serve as the neutral chair? 48 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

49 ARBITRATOR QUALIFICATIONS Example of AAA Recommended Language: A single arbitrator shall be appointed if the amount in controversy is less than $1,000,000. He or she must be a lawyer whose legal practice during the prior 10 years focused at least 50% on law litigation. If the amount in controversy is equal to or greater than $1,000,000, three arbitrators shall be appointed one a lawyer with the experience described above, one a and one an. 49 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

50 ARBITRATOR QUALIFICATIONS PRACTICE TIP #7: Arbitrator Qualifications It is better to not specify arbitrator qualifications than to: Specify qualifications that are ambiguous; Would greatly reduce the pool of available experienced arbitrators; Prove challenging or impossible to satisfy. 50 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

51 APPOINTMENT OF THREE ARBITRATORS PRACTICE TIP #8: Selection of a Panel If three arbitrators are to be appointed, clearly state whether two shall be party-appointed, whether they shall serve as neutral or nonneutral arbitrators and how selection shall be handled if there are more than two parties. Specify a time frame within which each step of the selection process must be accomplished and always provide a fallback in the event the designated selection process fails. 51 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

52 AAA APPELLATE REVIEW PRACTICE TIP #9 Review of the Award Notwithstanding any language to the contrary in the contract documents, the parties hereby agree that the Underlying Award may be appealed pursuant to the AAA s Optional Appellate Arbitration Rules; that the Underlying Award shall at a minimum be a reasoned award; and the Underlying Award shall not be considered final until after the time for filing the notice of appeal pursuant to the Appellate Rule has expired. Appeals must be initiated within (30) days of receipt of the Underlying Award, as defined by Rule A-3 of the Appellate Rules, by filing a Notice of Appeal with an AAA office. Following the appeal process the decision rendered by the appeal tribunal may be entered in any court having jurisdiction thereof. 52 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

53 Free, on-demand online tool created to help parties draft efficient and enforceable arbitration clauses with clear, concise language. Industry- specific versions: Commercial Construction Employment (both Executive and Employer Plan) International Healthcare 53 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

54 CLAUSEBUILDER Selections Include: Number of Arbitrators Method of Arbitration Selection Arbitrator Qualifications Locale Provisions Governing Law Discovery Documents Only Hearing Duration Remedies Assessment of Forum and Attorneys' Fees And more.. 54 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

55 CLAUSEBUILDER ClauseBuilder can be accessed at: ClauseBuilder also allows people to save their work if they register. This gives them one central location to store all of the clauses they are working on. If they do not register, they can simply download and print the clause they are working on. 55 THE ART OF DRAFTING A SENSIBLE ARBITRATION CLAUSE

56 Questions? Michelle Skipper (704) Andrew Barton (210) Jonathan Herman (214)