The Claims Against the Government Section has worked with agencies over the past year
to determine whether dispute resolution techniques can be used in an efficient and effective
manner to supplement traditional administrative adjudication for resolving many of the claims
for money that are filed with Federal agencies. More than forty representatives from twenty
different agencies have participated in the work of the Section. Peter Steenland, Senior Counsel
for ADR at the Department of Justice, served as Chair of this Section, with the assistance of Jeff
Senger, Deputy Senior Counsel for ADR.
This report begins with a discussion of current practices involving the resolution of
claims for money that are made against the government. Next, the report includes several
examples of success stories from participating agencies. Finally, the report sets forth the
Section’s plans for the future as well as a description of a Pilot Arbitration Program that the
Section plans to implement over the coming year.
The Section is dedicated to finding better ways to resolve claims filed against the
government that seek money damages. We have focused on the administrative stage of these
claims, because that is the subject of the Administrative Dispute Resolution Act that created the
Working Group. We did not cover monetary claims that arise from workplace and contracting
controversies, as these types of disputes are addressed in other Sections of the Working Group.
A large number of monetary claims are filed against the government under the Federal
Tort Claims Act, 28 U.S.C. §§ 2671-2680 (FTCA). For example, a citizen who slips and falls on
the steps of a government building or is involved in an automobile accident with a government
vehicle may file a tort claim under the FTCA seeking damages from the United States. The
Section reviewed monetary claims that arise under other statutory regimes as well. For example,
claims are filed at the Department of Agriculture seeking money damages as a result of that
agency’s denial of a loan or a farm subsidy. The Department of Interior and the U.S. Army
Corps of Engineers handle demands for money under the Just Compensation Clause of the Fifth
Amendment for takings of private property due to various regulatory and environmental
protection regimes. The Department of Health and Human Services has an administrative
process in its Provider Reimbursement Review Board to resolve allegations that certain
reimbursement rates for health services are too low. Other agencies are also confronted with
demands for monetary payments unrelated to government contracts or workplace matters. Apart
from the administrative processes set up by the FTCA, some agencies have developed a formal
mechanism for addressing these matters and others have not, electing to handle them on a more
ad hoc basis.
Virtually all of these claims are initiated by an administrative demand for payment filed
with the agency in the first instance. After investigating the claim, the agency can agree to pay
the amount demanded, make a compromise offer, or deny the claim outright. If the agency
denies the claim or fails to reach a final disposition after six months (under the FTCA), the
claimant may file a lawsuit in United States District Court. Claimants alleging an
unconstitutional taking of private property generally file suit in the United States Court of
Federal Claims. Once a suit is filed, the matter is transferred to the Department of Justice for
litigation purposes. 28 U.S.C. § 2675.
Agencies generally have the authority to settle cases at the administrative stage for
amounts up to $25,000. If an agency wishes to settle an administrative claim for more than this
amount, it must present the proposed settlement to the Department of Justice, which must give
written approval. In some circumstances, the Attorney General has delegated higher settlement
authority amounts to several agencies. An agency may decline to settle administratively a case
when a demand has been made in excess of its settlement authority without consulting the Justice
Department. 28 U.S.C. § 2672.
III. SUCCESS STORIES
In the past, ADR has been used relatively infrequently in cases involving monetary
claims against the government, but its use has been increasing recently. Agencies participating
in the Section report a number of success stories in this area, some of which are discussed below.
A. CLAIMS FOR PROVIDER REIMBURSEMENT
Before using ADR, the Provider Reimbursement Review Board at HHS had a backlog of
10,000 pending cases. Parties waited up to three years for a hearing and another year after that
before a decision could be rendered. Some HHS managers were initially skeptical of using
ADR, fearing it would add yet additional delays to the process. Others at HHS thought ADR was
unnecessary because more than 90 percent of the cases were settling without any assistance.
However, most of these administrative claims did not settle until the eve of the hearing. This
was often three years after the claim had been filed and after the lawyers had done considerable
work to prepare the dispute for a hearing.
The Board instituted an ADR program that has saved all parties both time and money.
ADR resulted in settlements of 44 of the first 48 cases where it was used. With this initial
success, use of ADR has greatly increased. In FY 1999, the Office of Hearings and Appeals
completed mediation of 81 cases and has mediation underway in an additional 53 cases. This has
reduced the number of pending appeals and also reduced the time required to resolve them from
three years to six months.
B. CLAIMS FOR FOOD STAMPS AND MEDICAID
ADR has also been used successfully to settle Food Stamp and Medicaid claim
adjustments involving state governments. After the Secretary of HHS issued determinations
regarding reductions in certain state Food stamp and Medicaid claims in early 1999, forty states
and the District of Columbia filed appeals. Congress required HHS to process these appeals
within strict time frames. HHS offered mediation to all the appellants under the Departmental
Appeals Board’s mediation program. All forty-one appellants who elected mediation have
succeeded in negotiating settlements.
HHS estimates ADR in these cases has saved the Federal government $600,000 in
potential adjudication costs and resolved more than $500 million a year, for five years, in
disputed funds. In addition, the process saved considerable time, because administrative appeals
could have taken two years, compared to the nine months for mediation. Finally, by the parties’
own assessment, mediation allowed for a fairer and less acrimonious settlement of differences,
thus preserving ongoing relationships between state and Federal officials involved.
C. CLAIMS FOR DRUG RATE REIMBURSEMENT
The Health Care Financing Administration initiated a dispute resolution pilot program for
states and drug companies. These companies would dispute and withhold rebate payments due
to the states (and the Federal government on a Federal medical assistance percentage basis). The
agency has found that mediation in these cases has been very cost efficient. In calendar year 1999
meetings, the agency spent $2,400 in travel expenses to send two staff members to Denver for a
week. During that one week, those staff members participated in the resolution of more than $50
million in disputes. In total, this program has resulted in the resolution of claims for more than
$520 million. The total travel expenses involved are only $80,000 since the program’s inception
The Drug Rebate Program was selected as one of the twenty-four finalists for the
prestigious Innovations in Government Award by the Ford Foundation, the John F. Kennedy
School of Government at Harvard, and the Council for Excellence in Government. The program
received a $20,000 grant award, which will be used to provide information about the project’s
effectiveness to a wide audience of potentially interested parties. The agency has also published a
“Best Practices Guide for Dispute Resolution under the Medicaid Drug Rebate Program,” using a
public/private partnership, which was distributed to all manufacturers and states. The Dispute
Resolution Project is a continuing effort.
D. CLAIMS AGAINST THE TENNESSEE VALLEY AUTHORITY
In July 1999, the Tennessee Valley Authority (TVA) implemented an ADR pilot program
which includes mediation and arbitration for various claims filed against the agency. The
program includes claims arising out of vehicular accidents, injuries on TVA’s lakes and land,
power supply interruptions, damage to property resulting from TVA’s construction, title
disputes, and environmental issues. TVA offers claimants the opportunity to participate in
mediation of their claims on a voluntary basis after initial attempts at unassisted negotiation have
failed. TVA, which has independent litigating authority, offers to mediate any claim, regardless
TVA also offers claimants the opportunity to submit their claims to an arbitrator for
certain matters involving $30,000 or less. The arbitrator’s decision is final and binding on all
parties. TVA does not offer arbitration in cases where the agency believes it is inappropriate,
such as cases involving significant legal principles that could adversely affect TVA and thus
should be decided by the courts.
TVA pays the cost of both the mediation and arbitration proceedings for smaller claims.
For larger, more complex claims that generally require more time, TVA divides the costs with
the claimants. Through the use of ADR, TVA saves the costs normally associated with
litigation, including the considerable time spent by TVA employees on discovery proceedings
and testimony at depositions and trials throughout the country. Litigation costs can range from a
few thousand dollars for simple cases to hundreds of thousands of dollars for more complex
cases. The agency also believes the public views these alternative procedures favorably, because
claimants gain similar cost savings and often resolve their claims in a more prompt and less
adversarial setting than is encountered in litigation.
The program has only been in existence for less than a year, but it has led to
the successful resolution of a number of claims. Even in cases where ADR did not result in a
settlement, the agency believes the issues often were narrowed or at least defined more clearly as
a result of the discussions with the claimants.
IV. THE SECTION’S PLANS FOR THE FUTURE
Section participants have stated they would like to share agency best practices in handling
claims cases. They would like to create a record of jury verdicts for various types of claims as a
benchmark for settlements and a database of experts used by all agencies and the Justice
Department in claims cases. Finally, participants would like more training in ADR, including
training provided by the Justice Department’s Legal Education Institute. The Section plans to
work on these suggestions over the coming year.
Finally, the Section has decided to work over the coming year toward the creation of a
Pilot Arbitration project to handle claims against the government. This proposal is covered in
PILOT ARBITRATION PROGRAM
The Section on Monetary Claims Against the Government proposes to create a pilot
arbitration program for the resolution these cases. In keeping with the requirements of the
Administrative Dispute Resolution Act, participation in such a program would be strictly
voluntary. No legislation is believed necessary to institute such a program, but agencies would
be required to maintain careful records of the disposition of claims by arbitration, in order to
develop a body of data that could then be shared with all members of the Interagency Working
Group in the context of evaluating the program for either termination or expansion.
B. KEY FEATURES OF THE PROGRAM
The following key features of the proposed arbitration pilot program reflect the present
intentions of the Section on Monetary Claims. The ultimate scope and design features of the
program may change, based on further consideration by the Section and comments by potential
Participating agencies: Any Federal agency currently processing monetary claims against
the government would be invited to participate in this program, on a regional or national basis.
Scope of the program: As a program adopted pursuant to the Administrative Dispute
Resolution Act, this pilot would be available to resolve administrative claims for money, up to
the limit of the agency’s existing settlement authority for the compromise of such claims.
Nature of claims: The participating agencies would identify those claims it finds are
suitable for resolution by arbitration. That decision would be final and not reviewable.
However, a claimant could reject the agency’s offer to arbitrate without prejudice to the fair and
expeditious processing of the claim.
Size of claims: Each participating agency would retain the discretion to set a ceiling on
the dollar value of claims submitted to arbitration. However, in no case could an agency agree to
arbitrate a dispute where the claim exceeds the agency’s existing settlement authority.
Other relief: Only claims that solely seek monetary damages would be eligible for this
program. Demands for equitable or other types of relief would render a dispute ineligible for this
Arbitrators: Each dispute in this program would be decided by a single arbitrator who
would be selected by the claimant from a panel assembled by the participating Federal agencies.
Role of the arbitrator: The arbitrator would be required to issue a final award within
thirty days of the time that the claim was submitted for resolution. The powers of an arbitrator
are established in the Administrative Dispute Resolution Act. In making awards, arbitrators
would be required to apply existing judicial and administrative precedents.
Procedures: The participating agencies would promulgate procedures for the fair and
efficient resolution of disputes that are less formal than established administrative or litigation
processes. These procedures would reflect the experiences of TVA described above, and of those
parties that have used arbitration in the Federal courts, pursuant to the Alternative Dispute
Resolution Act of 1998. In all tort cases, the arbitration would be completed within the six-month statutory period for administrative consideration of such claims.
Costs: Each party would bear its own costs of the arbitration. However, the agency
participating in the arbitration would bear the cost of the arbitrator.
C. POTENTIAL BENEFITS OF THE PROGRAM
Whether a Federal agency is proceeding under the FTCA or some other statutory process
for resolving monetary claims against the government, binding arbitration can offer something
for everyone in appropriate cases. An agency can conserve its resources and staffing by using
these expedited, informal procedures. Those resources can then be better spent on those disputes
that present significant legal principles or where the government believes no liability has
attached. Similarly, claimants can use arbitration to save on legal fees and litigation costs. A
swift and final resolution of these disputes can benefit all parties. Moreover, this program can
resolve a number of disputes that otherwise would be destined for the Federal courts. In essence,
the Section proposes to create the equivalent of a “Small Claims Court” to resolve administrative
claims for monetary disputes. Moreover, because the entire program would be voluntary in
nature, with the agency charged with the initial screening of appropriate cases, and the claimant
retaining the ability to pursue for formal processes if desired, there can be no claims of “second
class justice” since the benefits of arbitration will be realized only by those who are willing to
use the process.
The Section believes that ADR can be extremely valuable in assisting with the settlement
of monetary claims against the government. It is not a silver bullet that will work in every case
where it is used. But when it is used in appropriate cases, ADR can result in settlements that can
free resources for other matters that cannot or should not be settled. Even where cases would
eventually settle on their own without ADR, we have found that these processes can result in
quicker and cheaper settlements. We look forward to continuing to work with agencies
throughout the Federal government in creating additional ADR programs and fine-tuning
existing programs. We also are eager to begin implementation of the Pilot Arbitration Program
to facilitate the resolution of monetary claims against the government.
Last Friday, mediators joined other citizens in the United States as they sat in shock and cried for the 26 people Adam Lanza killed in Sandy Hook, CT. Over the...By Juliana E. Birkhoff Ph.D.