Unequal Bargaining Power in Healthcare: Lessons from the Nitta Ruling

The recent Nitta ruling highlights the significant imbalance in Hawaii's healthcare contracting system. In this case, physicians argued that the standardized contracts from HMSA were unfair and that the arbitration requirement should not be enforced. However, the court rejected these arguments.

The court ruled that the arbitration clause is legally binding, meaning that providers who signed the agreements must resolve disputes through private arbitration, and the contracts cannot be dismissed due to claims of unequal bargaining power. Importantly, the ruling did not assess the fairness of the contract terms themselves; it focused strictly on the enforceability of arbitration. The decision affirmed that the contracts remain intact as written, with arbitration being the exclusive method for dispute resolution.

The logic behind this ruling relies on the assumption that physicians have meaningful choice or representation in the contracting process. However, the Hawaii Medical Association has clarified in the Trading Partner Agreement with HMSA that it does not negotiate these contracts on behalf of physicians. Instead, HMSA presents the agreements directly to individual providers, with the HMA not being a party to them. Since HMSA controls the majority of the commercial and governmental insurance market in Hawaii, physicians have little choice but to sign these contracts. Refusing to do so would result in exclusion from the network covering most state residents. Consequently, arbitration, which is intended to resolve disputes between parties of equal standing, is applied in a context where one party unilaterally drafts the terms and the other must accept them to continue practicing.

The Hawaii Healthcare Task Force has reviewed the court's recent opinion in Docket 46, which mandates physicians to pursue arbitration rather than allowing their claims to be heard in open court. While this ruling addresses a narrow legal issue, it fails to confront the broader reality of Hawaii's doctors and patients: the state's largest insurer has disproportionate power to impose contract terms and payment practices that undermine patient care. For years, physicians across Hawaii have expressed concerns regarding HMSA's claims-payment practices, including delays in processing, denials based on shifting criteria, and uniform contract language that prevents providers from effectively challenging unfair terms. This is especially problematic for rural physicians, as these policies increase administrative burden and jeopardize the financial stability of clinics and hospitals that are already struggling to remain open.

The court's ruling that physicians must address grievances through arbitration creates an additional obstacle. Arbitration is a closed-door process that typically favors repeat players like HMSA, depriving providers of the transparency and leverage that formal litigation can offer. Coupled with restrictive contract terms, this approach ensures that physicians have little recourse to contest payment delays or denials. The Task Force challenges the assumption behind the ruling, which suggests that physicians are adequately represented in contract negotiations simply because statewide associations are involved. Many independent and rural physicians feel they have no voice in these agreements, and their ongoing issues with claims payment highlight this reality.

Although the Task Force views the ruling as a setback, there are still legal and policy options available. Physicians may consider appealing the order compelling arbitration, especially if arguments can be made that the arbitration clause is unconscionable or beyond what was agreed upon. They can also directly challenge the validity of the arbitration clause, citing procedural unconscionability (contracts of adhesion in a monopoly market) and substantive unconscionability (terms that heavily favor HMSA and limit meaningful remedies). Additionally, physicians can dispute who decides the arbitrability of claims, arguing that courts, not arbitrators, should determine whether disputes belong in arbitration.

Apart from litigation, there are legislative and regulatory paths to explore. Hawaii could consider restricting or banning mandatory arbitration clauses in healthcare provider contracts, following the lead of other high-stakes industries, such as nursing homes. Also, federal preemption or antitrust arguments could be pursued, reframing HMSA's dominance and the use of forced arbitration as an abuse of market power rather than a simple contractual matter. Even within arbitration, process challenges are available, as awards can be overturned if they demonstrate bias, exceed the arbitrator's authority, or violate public policy.

If Hawaii is serious about protecting access to care, two urgent reforms are needed. First is contract fairness: providers must have a meaningful role in shaping the terms, with voluntary arbitration clauses rather than mandatory ones. Second, claims accountability: insurers must be held to enforceable timelines and standards for paying physicians, ensuring that administrative barriers do not obstruct care in communities already facing shortages. The court may have addressed specific legal issues, but the larger challenges remain unresolved.