Hearing On

Mandatory Binding Arbitration: Is it Fair and Voluntary?

September 15, 2009


Thank you Chairman Cohen, Ranking Member Franks, and members of the Committee. It is my pleasure to offer the long term and post-acute care profession’s perspective on arbitration on behalf of the American Health Care Association and the National Center for Assisted Living (AHCA/NCAL). 

 In the increasingly litigious environment, a growing number of health care and long term care providers – including nursing facilities and assisted living residences – have incorporated arbitration clauses into their admissions materials given to residents when being admitted to the facility or residence. AHCA/NCAL supports the use of arbitration agreements as a viable option for long term care providers and their residents to resolve legal disputes. Arbitration is less adversarial than traditional litigation, produces quicker results and has been determined to be both fair and appropriate by our courts. 

AHCA/NCAL and our members are committed to ensuring that long term care facilities place paramount importance on the delivery of high quality care and provide a safe and secure environment for the millions of Americans residing in our nation’s nursing facilities and assisted living residences. When legal concerns arise, we believe that arbitration provides a fair and timely resolution for both the consumer and long term care provider. 

On behalf of the profession responsible for caring for our nation’s most vulnerable citizens, I am proud of the advances we have made in delivering high quality long term care services and we remain committed to sustaining these gains in the years and decades ahead – when, as we all know, demand for long term care will by all accounts dramatically increase.

Americans are living longer and our nation’s aging population is growing – many of whom have significant medical or cognitive conditions which require care in a nursing facility.  Currently more than three million Americans rely on the care and services delivered in one of the nation’s nearly 16,000 nursing facilities each year, one million are cared for in more than 38,000 assisted living residences, and the demand for such services is going to increase dramatically every year.  A March 2008 report from the National Investment Center for the Seniors Housing & Care Industry (NIC) indicates that the demand for long term care services will more than double by 2040.

The efforts and initiatives advanced by the association that I represent today seek to enhance and improve quality of care and services provided in our nation’s nursing facilities and assisted living residences each day. 

Quality – AHCA’s First Priority

Before I address the benefits of arbitration as an alternative to litigation in resolving disputes, allow me to take a moment to assure the Committee that the troubling anecdotes presented today represent the exception instead of the rule within the long term care community. Long before the words quality and transparency were the catch words of the federal government and their oversight of healthcare, they were truly the compass for AHCA/NCAL and its member facilities. 

AHCA/NCAL has been working diligently to change the debate regarding long term care to focus on quality – quality of life for patients, residents and staff; and quality of care for the millions of frail, elderly and disabled individuals who require our services. We have been actively engaged in a broad range of activities which seek to enhance the overall performance and excellence of the entire long term care sector.  While keeping patients and their care needs at the center of our collective efforts, we continue to challenge ourselves to improve, and enhance quality. 

Quality – A Transparent Process

This week, AHCA and the Alliance for Quality Nursing Home Care are releasing a report that analyzes and assesses the status and trends of quality in nursing facilities since the 2002 inception of Quality First. This Quality Report is the first of its kind, featuring research and critical analysis by leading experts in the fields of Quality and long term and post acute care services. The entire report is available at www.ahcancal.org – some highlights of the report include:

   *        "Nursing and rehabilitation facilities have evolved to serve two distinct patient populations: short-stay rehabilitation and medically complex patients, and long-stay chronic care residents."

-Nursing and Rehabilitation Facilities of the 21st Century (Avalere Health, LLC)

   *        "Almost 40 percent of short-stay Medicare patients were discharged to the community in 2006 after a stay of about 25 days, highlighting the interdependence of facility and home-based care."

-Nursing and Rehabilitation Facilities of the 21st Century (Avalere Health, LLC)

   *        "The acuity of the nursing home resident population has increased dramatically and the length of stay of most patients is now less than 90 days."

-Changes in the Quality of Nursing Home Care in the U.S. (Mor, et al)

   *        "It is clear that nursing home quality is multi-dimensional; what is also becoming clear is that it is no more appropriate to compare all nursing homes with one another than it would be appropriate to compare an Obstetrics hospital with an Oncology hospital."

-Changes in the Quality of Nursing Home Care in the U.S. (Mor, et al)

   *        "Working in concert with all stakeholders at both the national and state level we can, together, assist nursing homes to become high performance organizations that, in partnership with their staff and residents, will be able to demonstrate the long term care community’s ability to deliver the best."

-Mary Jane Koren, M.D., M.P.H., Chair, National Steering Committee for Advancing Excellence in America’s Nursing Homes

 We remain committed to sustaining – and building upon – these quality improvements for the future.

Arbitration – A Fair & Efficient Alternative

In the late 1990’s, the long term care profession was subject to excessive liability costs, which were exacerbated by an increasingly litigious environment. As a result, operators of nursing facilities and assisted living residences were forced into making difficult decisions including potential closure or divestiture of facilities, and corporate restructuring.  In addition to pursuing state and national tort reform legislative initiatives to enable facilities to continue to operate and provide essential long term care services in a difficult environment, the profession sought alternatives to traditional litigation including arbitration.  This trend was especially true in states such as Florida, Arkansas, and Texas, where state laws fostered an exponential growth in the number of claims filed against long term care providers – even those with a history of providing the highest quality care.  

Arbitration is a legal process where the parties enter into an agreement to resolve disputes by an unbiased, unrelated third party. AHCA/NCAL represents the vast majority of our nation’s nursing facilities and assisted living residences and supports the use of arbitration clauses as a viable option for long term care providers to resolve legal disputes. When legal concerns arise, we believe that fair and timely resolution – the kind that is often the product of arbitration – is in the best interest of both the consumers and their care providers.

Over the course of the past ten years arbitration has became a more widely used alternative in long term care. This growth has been across the board for long term care providers – from single owner facilities to national chain facilities; and for non-proprietary and for-profit organizations. As a service to our member facilities and the residents they serve, in 2002 AHCA/NCAL developed a model arbitration agreement form for possible use in the admission process.

This model agreement in no way alters the rights or remedies available to a resident under state tort law. It states in plain English that entering into the arbitration agreement is not a condition of admission into the facility.  Further, the model form provides a 30-day window for the resident or their representative to reconsider and, in writing, rescind the arbitration agreement.  This 30-day "cooling off period" far exceeds the period of time found on most arbitration clauses.

A recent survey conducted by Aon Global Risk Consulting contained findings regarding the content of arbitration clauses and the methods by which these arbitration agreements are presented to residents and/or their agents.  The June 2009 report entitled "The American Health Care Association: Special Study on Arbitration in the Long Term Care Industry," found that of the fourteen respondents to AON’s qualitative study (representing 7% of the skilled nursing occupied beds), none required a signed arbitration agreement as a condition of admission; none attempted to limit awards beyond state statutory caps; and all incorporated explicit warnings that the arbitration agreement precluded a jury trial.  Most of the survey respondents utilized a stand-alone arbitration agreement, as opposed to a clause in the admission agreement.  According to the AON survey, all respondents inform the resident (or agent) that the agreement is not a condition of admission. 79 percent of the respondents allowed for a period in which the arbitration agreement could be revoked. Those respondents offering a revocation period indicated that revocation is exceedingly rare, with responses ranging from less than 2 percent to less than 5 percent.  Six of fourteen respondents offered the applicant a separate brochure, video, or other educational opportunity related to arbitration agreements. 

AHCA/NCAL supports the use of arbitration because unlike traditional litigation, our members have experienced that arbitration is more efficient, less adversarial, and has a reduced time to settlement.  As this Committee is no doubt aware, most cases are resolved through settlement.  Arbitration facilitates that process. Another Aon report entitled "Long Term Care – 2008 General Liability and Professional Liability Actuarial Analysis" found, "Arbitration reduces the time to settlement by more than two months on average." It further found that "very few claims actually go all the way to arbitration [as] most claims are settled in advance."

Timely resolution of disputes is of unique importance to residents of long term care facilities and their families.  Often the individuals are very frail elderly in their twilight years and it is a comfort for families to reach a settlement during their loved one’s lifetime. 

In addition, because it vastly reduces transaction costs, arbitration may also enable patients and their families to retain a greater proportion of any financial settlement than with traditional litigation.  The same report found that "currently, 55.2% of the total amount of claims costs paid for GL/PL claims in the long term care industry is going directly to attorneys. This means that less than half of the dollars spent on liability is actually going to the patients and their families."  The decreased transaction costs associated with arbitration means more of any award received goes to the party whom is most deserving – the patient or resident, not their legal representative.

"Fairness in Nursing Home Arbitration Act of 2009" – An Unfair & Inappropriate Bill

We believe that the Fairness in Nursing Home Arbitration Act of 2009 (H.R. 1237 and S. 512) and the Arbitration Fairness Act (H.R. 1020 and S. 931) are misguided attempts to restrict and weaken the Federal Arbitration Act (FAA), which has been in place for more than 80 years. The FAA appropriately recognizes the strong national interest in disputes being resolved in a forum other than the courts when both parties agree to do so. We firmly believe that this legislation and other efforts to undermine the FAA is bad public policy and a step in the wrong direction.

Unfortunately, this debate is colored by anecdotes and misinformation perpetuated by high-profile trial attorneys who traditionally oppose any effort to bring balance to the personal injury playing field, and who give too little consideration to the harmful consequences on the long term care industry that follow from the high transaction costs of traditional litigation and the resulting financial drain on the system.  Entering into a nursing facility or assisted living residence can often be a time of uncertainty and apprehension, but assertions that family members are threatened into signing the arbitration agreement are simply untrue. As I stated earlier, AHCA/NCAL developed a model arbitration agreement that was provided to members which clearly states that there is a 30-day "out clause" and that declining to sign the form will not have an affect on admission to the facility. 

It is important for this Committee to recognize that the FAA does not inherently foster or sanction any disregard for traditional notions of fair play when it comes to entering an arbitration contract.  The FAA simply requires that an arbitration agreement be enforced "save upon such grounds as exist at law or in equity for the revocation of any contract."  Numerous courts across this nation have not hesitated to invalidate nursing home arbitration agreements when they have found that a representative lacked authority to act for the resident, a resident lacked the capacity to enter the agreement, or that an arbitration agreement was otherwise unconscionable, either in the substance of its terms or in the way it was presented to and signed by the resident or the resident’s representative.

The Fairness in Nursing Home Arbitration Act of 2009 needlessly discriminates against long term care providers and more importantly the patients and residents in our nation’s nursing facilities and assisted living residences by eliminating their federal right to agree to arbitrate future disputes.  Pre-dispute arbitration agreements are a viable legal option for long term care consumers and providers, and their use should not be eliminated by misguided policies – nor should the consumer’s choice to agree to arbitrate pre-dispute be denied as is the legislation would do.  It is clear that if the legislation were to become law, even residents who voluntarily chose to submit to pre-dispute arbitration would have that right to choose denied, a right that is not denied in any other consumer transaction.

A May 1, 2008, letter to Congress signed by twenty business organizations including the Business RoundTable and the U.S. Chamber of Commerce echoes our concerns with this bill – and other legislative efforts to limit the use of arbitration.  The letter states, "Even though arbitration has been used to amicably resolve disputes for more than 80 years, those who wish to dismantle the arbitration system are attempting to effectively abolish all pre-dispute arbitration by using anecdotes and a handful of poorly designed or inaccurate studies to validate their unfounded claim that the system is broken." 

Public sentiment is also opposed to eliminating the use of arbitration to resolve disputes.  In fact, the U.S. Chamber of Commerce’s Institute for Legal Reform recently conducted a national poll which found that "given the choice, voters strongly prefer [82%] arbitration over litigation to resolve any serious dispute with a company."  The bipartisan survey, which was released in April 2008, also concluded that "voters strongly believe Congress should NOT remove arbitration agreements from the contracts consumers sign with companies providing goods and services (71%)."

Like the vast majority of Americans, AHCA/NCAL believes that legislative proposals to limit arbitration and undermine the FAA is bad public policy.  We strongly support the use of arbitration as a reasonable, intelligent option for both patients and providers to help assist in the resolution of legal disputes, and aggressively oppose efforts to diminish the use of arbitration by American businesses, especially those unfairly targeting long term care consumers and providers.

Thank you for the opportunity to offer these comments on behalf of millions of professional, compassionate long term caregivers and the millions of frail, elderly, and disabled Americans they serve each day.

Author: AHCA from AHCA
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