The Fairness in Nursing Home Arbitration Act: An unnecessary legislative 'fix'

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T. Andrew Graham
T. Andrew Graham
Alas, with the economy in an uproar, the United States Senate doesn't have enough to do.  The Senate insists on pursuing its "Fairness in Nursing Home Arbitration Act of 2009," even though the proposed statute does little to advance the healthcare concerns of Americans and might, in fact, harm those same constituents that the senators purport to protect.  Our esteemed senators apparently never listened to their collective mothers' advice:  If it ain't broke, don't fix it.

The Fairness in Nursing Home Arbitration Act of 2009 (S. 512) [] is a deceptively simple bit of proposed legislation that would invalidate all pre-admission arbitration agreements between a resident and a nursing home or long-term care provider. The bill, sponsored by Sen. Mel Martinez (R-FL), applies to agreements signed in the past, as well as to any agreements that might be signed in the future (1). It contains no provisions for federal agencies or courts to examine the specific bargaining positions of any individual parties when instances of actual disagreement arise.

The proposed Nursing Home Arbitration Act of 2009 flies in the face of long-standing legislative, executive, and judicial policy. It also runs counter to shrewd academic analysis by disinterested professionals.  In short, the bill is a solution in search of a problem—it simply is not necessary.

Legislative branch: Round two, and counting

The federal legislature considered the Fairness in Nursing Home Arbitration Act in 2008, but it never advanced the Senate's bill beyond the committee stage.  Martinez introduced the 2008 bill.  During the bill's consideration, the Senate Judiciary Committee conducted hearings, and numerous witnesses testified about the bill.  Those witnesses included Kenneth Connor, a plaintiffs' attorney who—as stated in his official biography []—was Martinez's college roommate. Connor's testimony focused on lurid details of extreme abuse and neglect; he did not address the reality in the vast majority of nursing homes nationwide.

While Connor opposed the bill, a disinterested witness, Stephen J. Ware, supported it.  Ware testified as a professor of law at the University of Kansas.  Professor Ware, a scholar who specializes in arbitration law, noted that the 2008 bill would harm more plaintiffs than it would help.  The professor noted that pre-dispute agreements to arbitrate are necessary to produce social benefits resulting form arbitration's lower process costs.   

The 2008 bill never made it to a full Senate vote.  The 2009 bill should not advance any further.

Executive branch:  No apparent problem requiring a new law

The Department of Health and Human Services is charged with safeguarding the nation's health care, including the safe and efficient functioning of nursing homes and other long-term care facilities.  Neither HHS' Centers for Medicare and Medicaid Services ("CMS") nor its Office of Inspector General ("OIG") has expressed any recent concern about binding mandatory arbitration agreements.  The Department of Justice, in fact, has recently gone on record opposing the Fairness in Nursing Home Arbitration Act.

CMS issued the government's most recent policy statement on pre-conflict arbitration agreements on Jan. 9, 2003. [] In that often-cited memorandum, CMS made no effort to prohibit arbitration agreements. In the intervening six years, CMS has not issued a single official statement or policy guideline regarding mandatory arbitration. CMS' silence is particularly striking in light of its recent COMPARE initiative, where it ranked nursing homes nationwide, using a five-star rating system. Certainly, if CMS found that arbitration agreements endangered patient care in any way, the existence of such legal arrangements would have been at least mentioned in the multiple discussions leading up to the nursing home rating system.

Similarly, OIG has remained silent on the subject. As recently as Sept. 18, 2008, OIG issued its Memorandum Report entitled "Trends in Nursing Home Deficiencies and Complaints" (OEI-02-08-00 140) []. That report does not mention binding arbitration agreements, despite its comprehensive coverage of actual deficiencies and real complaints made by residents.

A different executive branch agency, the Department of Justice, has addressed the matter directly. In a letter dated July 30, 2008, [] the department explicitly stated its opposition to the 2008 bill, stating that the proposed law "would needlessly invalidate arbitration agreements between long-term care facilities and residents of such facilities."  Noting that the bill would retroactively invalidate all existing signed agreements between residents and their facilities, and that the bill eliminates all opportunity to evaluate the specific facts of specific situations, the department "strongly opposes" new legislation. In addition, the department noted that the bill might well be unconstitutional, to the extent that it attempts to regulate intrastate commerce (nursing homes that operate solely within one state).

Judicial branch: Existing framework to handle disputes

The judicial branch of our government already effectively handles disputes that do arise regarding the legality of agreements to arbitrate. Courts regularly hear cases regarding whether specific agreements are unconscionable, applying standards of black-letter law that have existed for centuries. If a court determines that an individual arbitration agreement was an unfair contract of adhesion, it determines remedies appropriate to the individual parties involved in the dispute.

Courts regularly evaluate all of the facts involving specific claims brought by individual plaintiffs. As finders of fact, courts are equipped to determine when individuals' rights have been trampled. They can determine when individuals did not have adequate notice of the rights that they waived when they signed contracts. They can determine what remedies are appropriate in specific situations. Courts can paint with fine-bristled brushes, determining solutions for people, rather than for entire systems. [See Lawrence v. Beverly Manor, 273 S.W.3d 525 (Mo. 2009), en banc holding that an arbitration agreement signed on behalf of a nursing home resident was not binding, and plaintiffs could bring a court action for their relative's alleged wrongful death.]

All too often, lawyers become involved in the healthcare system when they see an opportunity to win substantial attorneys' fees, rather than when they identify actual threats to the health and dignity of vulnerable individuals. As courts have noted, legislation such as Senate Bill 512 should not advance attorneys' personal pecuniary interest. [See Bernstein v. Extendicare Health Services, Inc. (D. Minn. 08-5874, Memorandum Opinion and Order issued March 4, 2009): "The Court hopes that Plaintiff's counsel is seriously committed to ensuring proper care for the Plaintiff and that the three law firms and eight individual attorneys representing her will assist her in pursuing any negligence claims she may have or in bringing complaints about the quality of her care to appropriate regulatory authorities, notwithstanding that these actions may not be as lucrative."]

Academics agree: No need for legislative fix

In addition to Professor Ware, who testified before the Senate Judiciary Committee at a hearing regarding the previous incarnation Senate Bill 512, other academics have agreed that there is no need for a legislative "fix" for a system that isn't broken.  

Professor Peter B. Rutledge, writing for the U.S. Chamber Institute for Legal Reform in "Arbitration - A Good Deal for Consumers," sets forth a point-by-point rebuttal to several misleading anti-arbitration arguments argued by Public Citizen. [] While Public Citizen's anti-arbitration protest focused on debt collection cases, Professor Rutledge's response can easily be extended to all arbitration matters, including those related to nursing homes.

Professor Rutledge's arguments can be summarized in four points:

* Arbitration generally provides results that are superior, or at least comparable, to the results that individuals could expect from the civil justice system;

* Specific data sets, such as statistics about consumer debt collection actions, do not apply to arbitration generally;

* Individual plaintiffs would suffer in the civil justice system, if arbitration became unavailable; and

* Existing research does not support or in some cases flatly contradicts generalized attacks on arbitration.

Senate Bill 512 proposes to change a fundamental statute, the Federal Arbitration Act, which has served the American people well for over eight decades. Such a substantial overhaul of fundamental legal rights should not be considered without due diligence on the part of those proposing a change.

No solid argument has been advanced in the legislative, executive, judicial, or academic communities to support S. 512. The bill does not help Americans, and it might well hurt them.

S. 512 should die its legislative death as its 2008 predecessor did, so that the overall governmental system, combined with long-standing American common law, can continue to efficiently protect individuals within the healthcare system.

(1) S. 512 appears internally inconsistent on the issue of retroactivity.

Drew Graham is an Atlanta-based partner with the law firm Hall, Booth, Smith & Slover, PC.

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