Saturday, April 19, 2008

When the legal system becomes too costly, contract around it

from WSJ:

Nursing-home patients and their families are increasingly giving up their right to sue over disputes about care, including those involving deaths, as the homes write binding arbitration into their standard contracts.

The clause can have profound implications. Nursing homes' average costs to settle cases have begun dropping, according to an industry study, even as claims of poor treatment are on the rise. The industry notes arbitration is slicing the number of patients winning big punitive judgments, the added penalties for severe negligence that can pump up the size of jury awards.

1 comment:

  1. At least some of the research on the effects of such arbitration requirements in customer contracts with brokerage firms find someproblems.

    First, the arbitrators are not really independent of the brokerage firms.

    Second, even in cases of what appear to outsiders as clear misbehavior on the part of the firm or its employers, arbitrators find for the finms in an overwhelming majority of the cases.

    Third, there is some evidence that the arbitration requirements are not clearly disclosed. Or that customers are pressured into signing.

    So I'm on the fence. I know that arbitration has worked well in labor relations--but that's in part because the problems noted above have not been present. I hope the nursing home industry has not just adopted arbitration to fend off responsibility, but I'll have to be convinced.