Computerization: reengineering the lawyering process for the 21st century.

In an earlier article in this journal,[2] the authors described the necessity for structuring and managing legal activity spawned by professional liability disputes and lawsuits. It was the authors, belief then that the need for application of business principles and computerization for management of lawsuits and for how disputes are resolved was imperative. The cost of American jurisprudence for industry and the business community continues unabated. Thus, the need to stem the time, cost, and resources involved in litigating and managing legal disputes remains a high priority, particularly for the health care industry.

A common item of discussion, debate, and argument is the changing attorney/client relationship. The dialogue is often bitter and angry. Defense costs are high and continue to increase. Measuring results is difficult. Yet, there are opportunities to create new value in these relationships. Instead of pointing accusatory fingers, clients and attorneys may create new roles. As each achieves a better understanding of the process in which they participate, each will discover new ways to obtain pecuniary and intangible values.

Defense costs in the casualty insurance industry, product liability, and the professional medical defense industry are rising. Concern for costs and increasing numbers of high-end medical malpractice and product liability awards has reached the executive level in many organizations. These executives must reduce operational costs; trim staff sizes and lines of operation; manage mergers, alliances, and acquisitions; and otherwise engage in "right-sizing" their organizations. Despite extensive efforts in this regard, some will go out of business because of increasing marketplace competition.

The complexity of these tasks has not prevented their accomplishment, and it is reasonable to assume that litigation management should, and will, come under comparable scrutiny. Financial officers and other health care executives are not satisfied that historical patterns of costs are the appropriate base line from which to establish reasonable future cost levels. They wish to better understand cost sources and are increasingly insisting on use of defense counsel who can demonstrate, not merely promise, reduced cost and high-quality services. Suggestions for solutions are many and varied. However, most of them focus on achieving greater efficiency only in some parts of the work process, such as document management, transmission of billing to the client, and electronic report transmission. A thorough rethinking of the entire relationship and work process has yet to emerge.

Managing the Total Process

The new management work environment has four components: flexible communication between client and attorney; dynamic work plans that combine task and cost tracking; client and lawyer focus on gaining strategic advantages; and accumulation of data that permits benchmarking.[2] Additionally, what is required is a focus on work plans, gaining a strategic advantage, and benchmarking within the framework of business plans for litigation management. Improvements in these areas lead directly to improved attorney/client communication. A focus on new litigation management tools, as well as on their benefits and constraints, also requires scrutiny (these new tools involve understanding how the elements of a case defense interact and how they relate to legal fees).

Resistance to Change

Resistance to change is a common phenomenon, particularly among lawyers and claims professionals. The accepted view of managing malpractice litigation is that it is so complex and subjective that it is not amenable to the kinds of analysis and control applied in other sectors of health care operations. Practicing lawyers seem to believe that each case is different and that successful outcomes depend primarily on the subjective judgment, personal experience, and ability of the lawyer. The primary objection to change is implied in the terms "professional judgment": knowing when to do what and how is the nontransferable essence of high-quality legal skills. Defense practices may be complex, but the level of subjectivity is debatable. While it is true that finding reliable substitutes for all the talents of an experienced trial lawyer is unlikely, many of the tasks he or she accomplishes can be parceled into subtasks that are considerably more objective and easier to understand. There is, in fact, a finite limit to the scope and types of defense counsel activities. The American Bar Association, s preliminary statement on task-based billing supports this proposition by producing a list of billing codes for tasks that the ABA intends to cover the entire scope of fee-for-service items.

Moreover, law firms expect to be profitable and will resist changes that may reduce profitability. However, there are ways in which lawyers can meet client needs while preserving a reasonable profit margin and improving the quality of legal services.

Other Industries

Other industries are encountering similar problems,[3-6] and some large corporations have committed substantial resources to improvement.[7] The 1993 Arthur Anderson/Corporate Legal Times General Counsel Survey reported that 58 percent of law departments in companies with annual revenues of up to $500 million do not believe that they have effective means to monitor or control outside legal costs. Further, the 1994 survey indicates that 67 percent of corporate counsel disagreed with the statement: "Key law firms regularly seek feedback about how well they are meeting legal department needs." It seems that there are limited control mechanisms on the client side, and few lawyers are willing to seek change. Although there are no comparable studies for the health care industry, it is the authors, experience that a similar situation exists in health care litigation.

Is Technology the Answer?

Some corporate entities have used a combination of quality improvement techniques and communication channels enhanced by computer applications to improve quality, reduce waste, and thereby attempt to reduce costs.3-6 Each was an "in-house" operation, using computer integration consultants. One of the reasons these entities built their own systems is that the litigation support industry has concentrated primarily on providing the types of services that attorneys claimed they needed to become more efficient. Examples of such litigation support services include billing and time management computer systems, document scanning and sophisticated word processing systems, and enhancements for preparing documentary evidence (such as computer-assisted accident reconstructions, i.e., "animations"). Legal symposia, meetings of legal associations, and trade shows present a glittering array of such vendors and their high-gloss wares.

Vendors usually deliver what they promise, but defense costs keep rising. The explanation for this is revealed, in part, by the experience of the Keene Corporation. (Other corporations doubtless shared the same concerns.) The Keene Corporation identified the following litigation management issues[7]:

* Measuring litigation results is difficult.

* Defense counsel billing statements are presented to clients as a huge volume of paper.

* Although detailed, billing data are often not very informative to the lay person.

* The client must spend many hours reviewing billing.

* The information presented on any given billing rarely relates to tasks in earlier periods.

* Remembering or identifying what has been done in an earlier billing statement requires cost-prohibitive client effort.

* Frequently, there is no way for either client or lawyer to determine if research or handling of similar issues has been previously done and paid for.

* Time spent by clients and lawyers on billing is completely nonproductive in terms of furthering the defense's strategic advantage, or in accomplishing more urgent tasks.

Redefining the Defense Process:

Technology, alone, is incapable of solving problems that are ill-defined. At best, technology improves the efficiency of elements of a process, but improving the efficiency of elements that lack key importance has limited impact on quality.

Effective change requires a shift to a new way of working that will accommodate effective measurements of the quality of services. This means that lawyers and their clients must avoid the lure of using technology to improve the efficiency of tasks that comprise the process in the mistaken belief that increased efficiency of task accomplishment leads to meaningful change in the process as a whole. For example, improving the efficiency of written communication does not mean that all communication issues are resolved. Failure to return client telephone calls, as an example, can perpetuate dissatisfaction with the exchange of information.

Any purported solution that is not based on a rigorous needs assessment of both client and defense firm will achieve limited success. Solutions come from reengineering litigation management, but reengineering does not mean total redesign or creation of new processes from the ground up when existing processes can be effective if modified. Applied to litigation management, this means that participants must step outside their roles and professional identities so that they can evaluate and redefine key responsibilities and accountability. This may be difficult for many lawyers and client-litigation managers.

Most clients and defense counsel care a great deal about their professional accomplishments and work extraordinarily long hours to achieve desired results. The fact that their efforts may not be as effective as they wish is understandable. Litigation practices are deeply rooted in legal education, precedent, the practice of law as a relatively cloistered industry, and legal principles such as stare decisis (case law precedents). Not only does case law guide new decisions, but existing practices, built up over decades, do not provide a catalyst for those interested in exploring change.

Just as industries as tradition-bound as health care have changed, so can those in the health care legal defense industry. Traditional manufacturing and industrial engineering concepts provide some of the tools.

The Total Management Scheme

Survival for the health care entity depends on operating efficiently in an operational arena of increasing complexity, on expanding plaintiffs, theories of recovery, on increasing amounts of discovery, and on the demands of health care delivery itself. Yet, litigation management has remained virtually untouched. Rather than awaiting its turn, clients and lawyers can proactively develop management tools to effectively plan work and to manage associated costs. Rather than attempting to change all aspects piece by piece, clients and defense counsel can concentrate on exploring unacceptable variances from a defined set of expectations. The objectives are to:

* Provide open and meaningful communication between client and defense counsel.

* Track performance of the defense firm by cost and by task.

* Permit counsel and client to focus on gaining strategic advantages as opposed to managing paper flow.

* Accumulate data that facilitate bench marking.

For the purposes of this article, benchmarks are indicators, criteria, or standards that describe the quality of defense practices. Benchmarking is thus the core of quality improvement efforts and is needed to relate work tasks to attorney fees and costs, so that lawyers and clients can compare case resolutions or outcomes to their antecedent tasks and cost.

Cost Tracking

The solution that appears easiest to implement is improved tracking of cost to legal task. Improvements are slowly becoming available, but, as will be seen, they are not the total solution.

The reality for defense lawyers is that the cost of legal services is an increasingly important component of the client, s perception of the value of those services. Clients often perceive general legal skills to be a widely available commodity, so it is not surprising that a major factor in selecting counsel is, quite simply, price. In the absence of other information, clients arbitrarily establish limits on hourly fees, establishing other methodologies and pricing parameters without consultation with defense counsel.

Lack of productive dialogue between clients and defense counsel leads to harsh solutions on both sides. Frustration occurs when clients and lawyers cannot objectively demonstrate and discuss the pecuniary value of defense work. This frustration signals the need for a more rational cost-accounting structure to serve as a measurement to gauge the effects of change. Yet, even assuming that better labeling and improved tracking of costs to tasks will address the inadequacy of defense billing statements, clients will still be faced with the burden of meaningful analysis of the tasks represented by the billing.

Case Cost Forecast (Budget)

The first step in analyzing whether a particular task is cost effective is to establish the outer framework of the billing tracking system: case cost forecasting, or budgeting. When introduced to case cost forecasting, lawyers typically respond that, because each case is different, prediction of their fees is impossible. Analysis of thousands of closed cases provides support, however, for the assertion that many tasks are common to all medical malpractice cases and that the range of hours billed for each task is reasonably stable.

The level of detail in cost forecasting is a matter of judgment and preference. Most forecasting models include three categories among which future case costs are described: costs by task, costs by law firm staff level, and costs by fiscal year. Cost tracking tools range from paper forms to sophisticated computer applications wherein the client has on-line access to the lawyers, computer billing system.

The Strategic Management Process

Strategic planning is a dynamic process involving all aspects of assembling the defense of a case. In order to better understand how it works and its implications for defending a lawsuit, one must investigate the interaction of, and the relationship among, the components or tasks that constitute the arsenal of a typical medical malpractice case.

Figure 1, page 42, shows the defense process as circular.[8] Circularity portrays the existence of cumulative learning, i.e., actions that seem to work are applied to defending future litigation. Most lawyers would agree that cumulative learning is so simplistic that it does not merit further study. Unfortunately, to an outside observer, process changes are rare. Figure 1 is a more detailed model of what we learn and how we should apply what we learn to future situations.

The smaller circle in the figure, labeled "Strategic Process," contains several elements. The first, "Structured Analysis," consists of comprehending written and oral information in terms of identifying legal term "issue,; is a statement that implies a need for confirmational support for the statement's evidentiary or legal basis or for refutation of validity of the statement. "Interactive Review" refers to accumulation of potential oral or documentary evidence as part of the process of testing initial issues. "Outcome Modeling" uses material gained during Structured Analysis and Interactive Review to predict possible interim issue resolutions or final case outcome.

The Strategic Process encounters "Contingencies" as the case progresses. Contingencies are events that signal opportunities to gain or lose strategic advantages. To the extent that the Strategic Process has been thorough, the defense will be able to take advantage of the situation. Contingencies, by their very nature, are unpredictable, although their impact on the case may be foreseeable. For example, the potential for a large verdict may not be an event that defense counsel predicts. However, the fact that high verdicts can increase plaintiffs, attorneys, short-term settlement expectations is a known effect. Effective planning factors in the possibility of the current settlement climate. If such events are actually predictable, they should be dealt with as case issues during Structured Analysis.

Following contingencies, the model moves toward establishing an "Approved Plan." If the "Outcome" is within the range of case resolutions acceptable to the client, the details of the Approved Plan are the quality indicators for future litigation management. In other words, discrete, objective tasks, tied to task-based billing, commence the formation of the database, which, over time, will yield clues as to what constitutes high-quality legal services.

Another way to understand the difference between the model and existing practices is to examine the way in which lawyers presently work. For example, there is a tendency to engage in "ritualisticism," i.e., to apply defense tactics, practices, and protocols that, in the past, were associated with success but without establishing an actual causal link or using a limited cause-and-effect analysis. An example would be use of a particular expert witness, obtaining a defense verdict, and then using the same witness until there is a loss at trial or the witness fails to perform well during depositions or trial testimony. Putting it another way, lawyers seem to prefer somewhat fixed sets of defense strategies or methodologies. If these attorneys continue to attract business, these work "habits" become cemented and change only in response to external events.

Benefits of Strategic Management

Figure 2, page 43, contains additional information summarizing the value of the Strategic Process.[8] A client/lawyer team using the Strategic Process can expect to benefit from several layers of synergies: within a case, within a group or portfolio of cases (inter-case), and among a population of cases that possess similar demographics (benchmarking). The benefits for individual case development are the relationship of planned task to cost in creating a case development plan. Both work load and cost exist within predicted parameters, can be adjusted for unforeseen events (contingencies), and create maximum ability to establish strategic advantages over opposing parties. Among cases, the added value of strategic planning multiplies. Because each case provides detailed development data, clients and lawyers can more easily compare what happened (case outcome) to how it happened (strategic plan). In turn, this analysis leads to formulation of templates or patterns of work tasks that allow the client and defense counsel to make some predictions about future amounts of defense work and their related cost.

Strategic planning data, when compared among diverse jurisdictions or geographic areas, yield information on defense practices that, given a desired cost parameter, are more likely to result in desired case outcomes (benchmarking). Stated differently, clients can better select defense practices, or law firms for that matter, that have consistently demonstrated cost effectiveness in achieving clients, designated management goals.

Need for Computer Network

Paper-based processes take time. Very often, the handling time is, itself, a problem, as in bureaucracies, where the paper process is more important than results. The most common solution is computerization. No global automated process has appeared in the marketplace to date, probably because of legal defense and insurance industry opinions that there is no incentive to create such a system. One corporation developed a system called Peregrine Solutions.6 This cost accounting system established expected hourly ranges for legal defense tasks and measured performance over time on a nationwide tort litigation basis. Their results were astoundingly good: a better-than 40 percent reduction in total defense costs despite a doubling of numbers of new law suits during the same time frame.

American Healthcare Systems[R] (AmHS[R]), a San Diego-based national health care alliance, in conjunction with the authors, is creating a system trademarked DefenseNet.[TM] AmHS[R] operates, on behalf of its members, one of the nation's largest hospital excess professional liability captive insurance carriers. Linkage and communications among its members and their defense law firms is a major strategic direction of management. DefenseNet[TM] will be the first integrated, on-line, defense planning and defense task management computer system and will provide members and defense counsel with state-of-the-art medical malpractice litigation management tools. This system will also increase productivity by legal counsel without reducing quality. Incorporating all of the strategic and cost management tools discussed above, this system will automate those parts of the defense process that facilitate creation of successful case strategies, tie defense tasks directly to cost projections, and serve as a consistent quality feedback system to clients and to defense counsel.

Summary

Although the concepts described here are not new to the manufacturing workplace, they do constitute a major redesign of the litigation management process. They provide wide latitude to defense counsel's individual practice preferences and an excellent basis for common understanding and acceptance of the work needed to defend a complex case. The concepts are equally applicable in professional liability, hospital and medical malpractice, product liability, and other civil litigation. As technology improves and is accepted by greater numbers of clients and lawyers as we approach the 21st Century, this reengineering of the lawyering process will increase the efficiency of the entire system, particularly the health care industry.

References

[1.] Toffler, A., and Toffler, H. War and Antiwar--Making Sense of Today's Global Chaos. New York, N.Y.: Warner Books. Inc., 1993, p 32. [2.] Heckman, F., and Zaremski, M. "The Business Plan to Manage High-Damage Liability Law suits." Physician Executive 10(8):10-3, Aug. 1994 [3.] "Reengineering Your Lawyers" Forbes ASAP, June 1994. [4.] "Billing Future Is Task-Based." Wall Street Journal, July 1, 1994. [5.] "Cost Control as Part of Total Quality Effort. Wall Street Journal, Oct. 5, 1994. [6.] "Developed Peregrine Solutions, M to Reduce Legal Bills of $3 Million per Month." National Law Journal, March 28, 1994. [7.] Rickerson, S. "Tying It All Together: Solutions for Achieving ,The Golden Triangle.", Association of Southern California Defense Counsel, Annual Seminar, Los Angeles, Calif., Feb. 10, 1995. [8.] DefenseNet[TM], a proprietary legal defense software system, is reproduced with permission of American Healthcare Systems,[R], Inc. It was developed by the authors and Jim Brannigan, a Senior Project Manager of SAIC, a systems integration firm in San Diego, Calif.

Frank D. Heckman is Director of claims, AmHS Insurance Management Services, San Diego, Calif. Miles J. Zaremski is a Partner, Rudnick and Wolfe, Chicago, Ill. The authors may be reached through Mr. Zaremski at 203 N. La Salle St., Suite 1800, Chicago, Ill. 60601-1293, 312/368-4000, FAX [phone].