"In July, 1969, the California Hospital Association and the California Medical Association jointly sponsored the first hospital based arbitration experiment in the country. the experiment included eight Southern California hospitals geographically located in the Los Angeles area. All of the hospitals selected were voluntary non-profit community hospitals with combined admissions of 498,190 during a period of from January, 1970 through June. 1975. [The project] was created in response to a critical situation developing in the State of California with respect to medical malpractice claims ...California was experiencing an increase in the incidence of malpractice litigation in excess of 25% of the increase at the national level."

"With this negative trend evolving, most of the major malpractice insurance carriers commenced to withdraw from the marketplace. This threat of unavailability of malpractice insurance loomed very intently over the California health care industry. It was thus hoped that arbitration would provide a less expensive and more expeditious method of resolving claims."

"The arbitration option utilized within this project is voluntary and binding upon all parties agreeing in writing to be bound by the arbitration contract. This type of arbitration contract was permissible in California under the California Arbitration Code ...Patients are advised by Admissions Office personnel of the arbitration option and the opportunity available to them to either initial the form and thus opt out of arbitration; or to revoke the option by forwarding such notification to the hospitals within 30 days from their date of discharge from the hospital. Patients are advised that admission to the hospital is not in any way dependent upon their agreement to arbitrate."

"A study was designed to compare data accumulated from two segments of time of four years each. The period prior to the implementation of arbitration, 1966 through 1969, and the period following commencement of the arbitration, 1970 through 1973, were used. These four year periods were analyzed to determine the impact of the arbitration concept on a group of hospitals which had enacted the concept as compared to a group of hospitals which had not."

"A further study [extended] the original one with incorporation of an additional eighteen months of data accumulated for both groups of hospitals. This study retained the identical data for the period prior to the implementation of arbitration, 1966 through 1969; however, the period following the commencement of the arbitration concept. 1970 through 1973, was extended to include claims experience from 1970 through June 30. 1975."

"The sample for the group of hospitals which had implemented an arbitration option consisted of the eight hospitals participating in the Southern California Arbitration project during the entire course of the program from1970 through June, 1975. While a significant number of hospitals have joined the Project since the end of 1973, their data was not included within the sample group of arbitration hospitals. A comparative group of hospitals in the Los Angeles area was selected to represent hospitals which were not yet involved in arbitration. The same group of hospitals was utilized in the earlier study to ensure consistency in the analysis . ...Data from insurance company records were analyzed to ensure comparability of the two groups of hospitals, and to determine the proportional impact of the arbitration option after five and one half years of operation."

[The following were among the principal findings of the study: (1) substantially fewer claims were filed in the hospitals participating in the arbitration project hospitals than in the comparative group; (2)both the total number of closed patient claims and the percentage of closed patient claims were significantly higher in the arbitration project hospital; (3) the arbitration project hospitals had both a significantly lower total paid loss, paid loss per closed claim, and paid loss per admission than did the comparative group; (4) the total cost of defending against malpractice complaints as well as defense costs per admission were significantly lower for the arbitration project hospitals; (5) the average length of time per claim from both the incident date and the date of filing to the date of settlement was significantly shorter for the arbitration project hospitals.]

"Notwithstanding the difficulties in implementation and administration of the arbitration system, the arbitration group of hospitals has documented their ability to more expeditiously resolve claims, once they were formalized with lower attendant costs ...than a group of hospitals not employing the arbitration concept . ...The positive transferability of the arbitration concept, as employed in the Southern California Arbitration Project, to other geographical areas throughout the country remains largely a matter of conjecture. However, its successful application in the resolution of medical malpractice claims in the Southern California Project should warrant further experimentation and evaluation of the concept as a viable alternative to the traditional litigatory system."

The foregoing is excerpted from An Analysis of the Southern California Arbitration Project, January 1966 through fare 1975. prepared by Duane H. Heintz. This report is available to the public from the National Technical Information Service, Springfield VA 22181.