HealthCap response to WSJ arbitration article

On April 11th 2008, the Wall Street Journal printed an article discussing the introduction of a bill in the U.S. Senate that would forbid care-providing senior living facilities from entering into arbitration agreements with their residents.

http://online.wsj.com/article/SB120786025242805879.html

HealthCap believes that such a measure is misguided and is not in the best interest of either residents or long term care facilities.  The following letter to the editor was written to the Wall Street Journal by HealthCap.

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As one of the largest nursing home liability insurers in the country, HealthCap disputes the idea that arbitration has a meaningful effect on claim costs, as you imply in your article. The American Health Care Association / AON study you cite is an important source of information on loss costs and trends, but its analysis concludes that claim cost reductions are primarily due to tort reform in certain states. Excluding tort reform states, loss costs per claim are not decreasing, and the increase in number of claims filed has resulted in steadily increasing litigation costs for the nursing home industry.

In many cases, arbitration can be favorable to the plaintiff, though generally not the plaintiff's attorney.  With arbitration, our experience is that the plaintiff is less likely to get nothing, since arbitrators inherently try to find a resolution between the two parties' positions, as opposed to a court, which tends to find entirely in favor of one party or the other. The plaintiff benefits from the speed of settlement, an important point for elderly plaintiffs who will directly benefit from a fast resolution.  Finally, because of the lower cost of arbitration, we think that more plaintiffs and their attorneys' can afford to mount a case through arbitration, when litigation could be prohibitively expensive.

The speed of resolution, and lower defense costs also make arbitration favorable for the nursing home and its insurance company.  Arbitration awards are typically less variable than jury awards given similar fact patterns, an important consideration for insurance companies or self-insured nursing home groups who need to be able to reliably predict their costs. 

Since both the nursing home resident and the nursing home see significant benefits from the arbitration process, it is no wonder that these agreements are increasingly common.  The main loser are the lawyers, both plaintiff and defense, who miss the significant billing opportunities presented by a trial.  It is no surprise given the economic incentives involved that plaintiff attorneys want to limit arbitration so they can maintain their chance of obtaining an extreme verdict and the resulting contingency fee.  Plaintiff attorneys are financially rewarded for gambling with their clients' cases.  This strategy results in an occasional excess verdict but also many defense verdicts and low verdicts which result in those clients recovering nothing.  At the same time they hurt all nursing home residents by trying to limit their ability to get a speedy and fair resolution to their case. 

The nursing home business is about caring for our country's elderly, and any attempt to prohibit or restrict arbitration agreements only serves to take dollars away from caregivers, residents, and their families and gives it to lawyers.

J. Marc Feeney
General Counsel
HealthCap RRG
Ann Arbor, Michigan