```

[Senate Report 110-518]
[From the U.S. Government Publishing Office]

                                                      Calendar No. 1109
110th Congress                                                   Report
                                 SENATE
 2d Session                                                     110-518

======================================================================

 
                FAIRNESS IN NURSING HOME ARBITRATION ACT

                                _______
                                

October 1 (legislative day, September 17), 2008.--Ordered to be printed

                                _______
                                

Mr. Leahy, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                         [To accompany S. 2838]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to which was referred the 
bill (S. 2838) to amend chapter 1 of title 9 of United States 
Code with respect to arbitration, having considered the same, 
reports favorably thereon, without amendment, and recommends 
that the bill do pass.

                                CONTENTS

                                                                   Page
  I. Background and Purpose of the Fairness in Nursing Home Arbitration 
     Act..............................................................2
 II. History of the Bill and Committee Consideration.................16
III. Section-by-Section Summary of the Bill..........................16
 IV. Congressional Budget Office Cost Estimate.......................17
  V. Regulatory Impact Evaluation....................................18
 VI. Conclusion......................................................18
VII. Minority Views of Senators Kyl, Sessions and Coburn.............19
VIII.Changes to Existing Law Made by the Bill, as Reported...........28

 I. Background and Purpose of the Fairness in Nursing Home Arbitration 
                                  Act

                               A. SUMMARY

    The purpose of S. 2838, the Fairness in Nursing Home 
Arbitration Act, is to protect vulnerable nursing home 
residents and their families from unwittingly agreeing to pre-
dispute mandatory arbitration, thus signing away their right to 
go to court.
    The bill would invalidate pre-dispute mandatory arbitration 
agreements in long-term care facility contracts. It does so by 
prohibiting the enforcement of arbitration agreements in cases 
between residents and long-term care facilities when the 
agreement to arbitrate was entered into prior to the dispute.
    The Fairness in Nursing Home Arbitration Act has the 
support of numerous advocacy groups including: the American 
Association of Retired Persons (AARP); the Alzheimer's 
Foundation of America; Consumer Action; Consumers Union; the 
Center for Medicare Advocacy; the National Association of Local 
Long-Term Care Ombudsman Programs; the National Association of 
Social Workers; the National Senior Citizens Law Center; 
NCCNHR: The National Consumer Voice for Quality Long Term Care; 
the Service Employees International Union; Public Citizen; 
Public Justice Center; U.S. Public Interest Research Group; and 
the United Food and Commercial Workers International Union. 
Many state organizations that advocate on behalf of senior 
citizens, nursing home residents, consumers, and families also 
believe that this is a critical issue, and they support the 
legislation.
    This legislation is prospective. It will take effect on the 
date of enactment and will apply only to a dispute or claim 
that arises on or after such date.

                        B. NEED FOR LEGISLATION

1. Background

    Millions of Americans turn to professional long-term care 
facilities when faced with the difficult decision of how best 
to care for loved ones who can no longer care for themselves. 
They do so expecting that nursing homes will provide adequate 
care and a safe environment. Sadly, however, some elderly 
nursing home residents suffer serious injuries as a result of 
substandard care. It is not until such injuries occur, and the 
injured residents attempt to hold a facility accountable in 
court, that they realize they signed mandatory arbitration 
agreements along with the admissions documents.
    Many long-term care facilities use admissions contracts 
that include pre-dispute mandatory arbitration agreements.\1\ 
By signing an arbitration agreement, residents and their 
families agree to give up the ability to choose a venue for 
resolving any future dispute with the facility. Instead, the 
agreement requires that all disputes be resolved in a costly 
and burdensome private arbitration proceeding. Thus, residents 
must give up their right to seek redress in court before an 
impartial judge or jury.
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    \1\The American Health Care Association, representing more than 
10,000 long-term care facility members, provides a ``model arbitration 
agreement'' to its members. The agreement is a pre-dispute binding 
mandatory arbitration provision which, when used, is signed at the time 
of admission. Fairness in Nursing Home Arbitration Act: Hearing on S. 
2838 Before Subcomm. on Antitrust, Competition Policy and Consumer 
Rights of S. Comm. on the Judiciary and S. Special Comm. on Aging, 
110th Cong. 4 (2008) [hereinafter ``Joint Hearing'' (statement of Kelly 
Rice-Schild)].
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    The nursing home admission process is emotional and 
traumatic for prospective residents and their families. The 
decision to enter a facility is made either immediately after a 
medical emergency, when an elderly person is no longer able to 
care for himself or herself, or when a family reluctantly 
acknowledges that they are no longer able to provide the level 
of care that their loved one needs. During the admissions 
process, residents or their caretakers face a blizzard of forms 
that must be signed in order to gain admission. Prospective 
residents that suffer from cognitive or physical impairments 
may have limited ability to read or understand arbitration 
agreements, much less the significant consequences that those 
agreements may have in the future. Family members admitting a 
loved one are focused solely on finding the best possible care, 
and not on the legal technicalities of arbitration.
    Due to the nature of the admissions process, prospective 
residents and their families cannot make, and should not have 
to make, a decision about whether to forego their right to hold 
the facility accountable in court for negligent care. This 
principal is supported by the Commission on Health Care 
Resolution, which consists of members of the American Medical 
Association, the American Bar Association, and the American 
Arbitration Association. These preeminent doctors, lawyers and 
arbitrators unanimously agreed that ``in disputes involving 
patients, binding forms of dispute resolution should be used 
only where the parties agree to do so after a dispute 
arises.''\2\
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    \2\American Arbitration Association, American Bar Association and 
the American Medical Association, Due Process Protocol for Resolution 
of Health Care Disputes 28 (1998) available at http://www.ama-assn.org/
ama1/pub/upload/mm/395/healthcare.pdf. (last accessed Sept. 18, 2008).
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    The ability of residents to hold poorly-performing 
facilities publicly accountable in court for negligent care is 
critical because government oversight of nursing facilities 
does not fully safeguard patient safety. That is why S. 2838 is 
necessary to protect residents and their families from being 
forced to make a critical decision about their legal rights 
during the stressful and emotional process of admission into a 
nursing facility. By preserving the residents' option of 
pursuing claims in court for negligent or abusive care, not 
only will the public be able to make more informed choices of 
nursing homes, but poorly-performing facilities will have a 
greater incentive to prevent injuries and death. Importantly, 
S. 2838 does not preclude the use of arbitration if it is 
agreed to after the dispute occurs. Parties are also free to 
use other forms of alternative dispute resolution, such as 
mediation.
    At a joint hearing of the Judiciary Subcommittee on 
Antitrust, Competition Policy and Consumer Rights and the 
Special Committee on Aging, David Kurth shared a tragic story 
about his father that demonstrates the problem that S. 2838 
will solve--nursing home residents and their families 
unknowingly agreeing to give up their right to take a facility 
to court for egregious injuries caused by negligent care.\3\
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    \3\Joint Hearing (statement of David Kurth).
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    At age 84, William Kurth, a World War II veteran, died as a 
result of the poor care he received while he was a resident at 
Mount Carmel Medical and Rehabilitation Center, a Kindred 
Healthcare Inc., facility in Burlington, Wisconsin. His family 
is trying to hold the facility accountable in court, but a 
nursing home arbitration agreement is standing in their way.
    When Mr. Kurth's wife of 63 years, Elaine Kurth, realized 
that she could no longer care for her husband at their home, 
she and her family made the difficult decision to admit him 
into a nursing home. Mount Carmel was the only nursing home in 
town and the only option that would permit Mrs. Kurth to visit 
her husband on a daily basis, since she was unable to drive. 
When Mr. Kurth sought admission, there were no available beds, 
so he was placed on the waiting list. Mr. Kurth was placed in 
another nursing home 20 miles away from his wife because of his 
pressing medical needs. Not long after, a space opened up for 
Mr. Kurth at Mount Carmel.
    On October 29, 2004, Mrs. Kurth went to Mount Carmel to 
help her husband with the admission process. When she arrived, 
Mr. Kurth had not yet arrived at Mount Carmel from his previous 
nursing facility. The admissions coordinator did not wait for 
Mr. Kurth to arrive and began the admissions process. The 
coordinator sped through about 50 pages of documents in one 
hour. Instead of giving Mrs. Kurth time to read the numerous 
pages of text herself, the admissions coordinator attempted to 
explain the contract terms to her. At the end of the 50-page 
admissions document, there was a mandatory binding arbitration 
agreement, which the coordinator said was a necessary condition 
of Mr. Kurth's admittance into the nursing home. Mrs. Kurth, 
anxious to complete the admissions process and ensure a bed for 
her husband, signed the agreement without understanding its 
significance or why it was necessary.
    Not long after entering Mount Carmel, Mr. Kurth broke his 
hip and was hospitalized for surgery. When he returned to the 
facility he was virtually immobile, putting him at risk for 
pressure ulcers. The facility staff failed to update or change 
Mr. Kurth's care plan, even though they knew that immobility 
put him at high risk for additional complications, including 
preventable pressure ulcers. As a result of their inaction, Mr. 
Kurth lost a substantial amount of weight and developed 13 
stage four pressure ulcers. The nursing home staff failed to 
prevent and treat the ulcers, which were so severe that they 
exposed his bone and organs.
    Unknown to the Kurths, around this time, Mount Carmel's 
corporate owner, Kindred Healthcare Inc., had reduced the wound 
care team from multiple caretakers to a single wound care 
nurse, responsible for the wound care of all 155 residents at 
the facility. This nurse failed to treat any of Mr. Kurth's 
pressure ulcers. Mr. Kurth suffered from untreated pressure 
ulcers, dehydration, and malnutrition, all of which led to his 
death because the nursing facility failed to supervise and 
train a sufficient number of staff.
    It was not until after the family filed a claim in Racine 
County Circuit Court against Kindred that the nursing home 
presented a copy of the arbitration agreement. This was the 
first time Mrs. Kurth remembered hearing about arbitration or 
the agreement. The nursing home moved to dismiss the lawsuit 
and force the family into binding mandatory arbitration. 
Relying on the signed arbitration agreement, the judge ruled 
that the case must be arbitrated under the terms that Kindred 
put in its contract. The Kurth family is currently appealing 
this decision.

2. Nursing home residents unknowingly or unwillingly sign away their 
        right to go to court

    Most nursing home residents and their families are 
completely unaware that they have signed away their right to 
sue a facility for substandard care. More than 40 percent of 
nursing home residents are admitted to a nursing home because 
they need immediate care following a medical emergency.\4\ 
Often, a nursing home choice is no choice at all, because there 
is only one nearby facility with an open bed when the resident 
is discharged from the hospital. Residents and their families 
are solely focused on obtaining the care their loved one needs 
so urgently, not on the many pages of documents they need to 
sign to complete the admissions process, much less the legal 
technicalities of an arbitration agreement.\5\
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    \4\National Center for Health Statistics 2004 National Nursing Home 
Survey, Current Nursing Home Residents, Table 4. Number of nursing home 
residents by age, sex, race, and other selected resident 
characteristics: United States, 2004. http://www.cdc.gov/nchs/data/
nnhsd/Estimates/nnhs/Estimates_Demographics_Tables.pdf#Table04 (last 
accessed Sept. 18, 2008).
    \5\Joint Hearing (statements of Alison Hirschel and Ken Connor).
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    Nursing home residents have challenged arbitration 
agreements in hundreds of cases.\6\ These cases describe the 
difficulty residents and their families face during the 
admissions process and how they are unaware that they had given 
up their rights to go to court. For example, Linda Stewart 
testified before the House Judiciary Committee Subcommittee on 
Administrative and Commercial Law about her grandmother's 
admission to a nursing home following an unexpected medical 
emergency. She testified that her sister was rushed through 
pages and pages of admissions forms when she sought to find 
care from the only facility with a bed for her mother. The 
admissions personnel made no mention of arbitration or giving 
up her right to go to court. It was not until her grandmother 
suffered serious, and ultimately fatal, injuries due to poor 
care that she learned about the arbitration agreement.\7\ At 
the joint Senate Judiciary Subcommittee and Aging Committee 
hearing, even Senator Mel Martinez admitted that after hearing 
the witnesses' testimony, he wondered whether he had agreed to 
mandatory arbitration when he signed a thick stack of papers 
during his father's admissions to a Florida nursing 
facility.\8\
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    \6\Lexis and Westlaw queries for challenges to nursing home 
arbitration agreements reveal approximately 300 and 120 cases, 
respectively. This search is limited to only published opinions. 
Presumably many more challenges fail without opinion and without an 
appeal.
    \7\Fairness in Nursing Home Arbitration Act of 2008: Hearing on: 
H.R. 6126 Before Subcomm. on Commercial and Administrative Law of the 
H. Comm. on the Judiciary, 110th Cong. 2-3 (2008) (statement of Linda 
Stewart).
    \8\Joint Hearing.
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    Not only does the need for care distract from consideration 
of an arbitration agreement, nursing home residents and their 
families do not adequately understand the far-reaching 
ramifications of a pre-dispute mandatory arbitration agreement. 
The effects of the emotional strain, in addition to pre-
existing cognitive or physical impairments, make it unlikely 
that a nursing home resident will comprehend the meaning of an 
arbitration agreement. The Alzheimer's Association estimates 
that 69 percent of long-term care and 50 percent of assisted 
living residents have some type of cognitive impairment.\9\ 
Sadly, many elderly people enter nursing facilities with no one 
to assist them in signing the admissions documents.
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    \9\Joint Hearing. (statement of the Alzheimer's Association) The 
Alzheimer's Association also notes that caregivers for people with 
dementia, who sometimes sign admissions documents, have a high rate of 
emotional stress and may not fully comprehend the ramifications of 
agreeing to mandatory arbitration.
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    Nursing home residents, or their families, usually come 
face-to-face with a contract for admissions after they have 
decided to apply to a particular facility, and then, only at 
the time of admission. As a result, they will not be familiar 
with mandatory arbitration agreements, much less the 
arbitration process and its legal consequences. This, on top of 
the likelihood that admissions personnel themselves do not 
understand or cannot explain the details of arbitration, makes 
it unconscionable to require residents to decide whether to 
sign a pre-dispute mandatory arbitration agreement prior to 
admission. Finally, since nursing home admissions contracts are 
take-it-or-leave-it contracts of adhesion, residents and their 
families do not have the ability to negotiate the terms of the 
agreement.\10\
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    \10\Joint Hearing (statement of AARP).
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    In the rare instances where an arbitration agreement is 
explained and prospective residents have the opportunity to 
read it, it is very unlikely that they understand the meaning 
of the agreement and the consequences of giving up their right 
to pursue a claim through the civil justice system.\11\ As 
evidenced by public opinion for arbitration, when people learn 
about the details of how disputes are resolved in arbitration, 
they do not support mandatory arbitration. After learning that 
binding pre-dispute arbitration agreements deny residents the 
right to litigate even after serious injury, respondents in a 
recent poll overwhelmingly disapproved of pre-dispute binding 
arbitration agreements.\12\
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    \11\Id.
    \12\Press Release, American Association for Justice, New Poll: 
Americans Say ``No Thanks'' to Binding Arbitration (May 19, 2008) 
available at http://www.justice.org/PressRoom/PressReleases/2008/
may19.aspx, citing a survey by Peter D. Hart Research Associates, Inc., 
``Legal Arbitration and the Arbitration Fairness Act Poll,'' May 1, 
2008 (Peter D. Hart Research Associates is an independent research firm 
that since 1971 has been providing polling for a wide range of clients 
from NBC to the Wall Street Journal to the Bill and Melinda Gates 
Foundation. The poll indicated that when given accurate and 
comprehensive information about the arbitration system, 81 percent of 
the respondents disapproved of pre-dispute binding arbitration 
agreements.).
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    Even in cases where residents or their caregivers do not 
want to agree to mandatory arbitration, they have little choice 
but to sign the agreements. When nursing home residents and 
their families come upon an arbitration agreement in the 
admissions contract, they are often at the only facility that 
offers the level of care needed with an open bed, or the only 
facility that is close to their family. Thus, the resident 
faces a Hobson's choice--waive your legal right to go to court 
in the event of a terrible injury or refuse to sign and risk 
not getting the urgent care you need. As a result, most 
residents will sign the agreement out of fear that the facility 
will find a way to deny them admission without attributing it 
to their refusal to agree to mandatory arbitration.
    The American Health Care Association, representing 11,000 
member long-term care facilities, says that under their model 
arbitration agreement, nursing home admission is not 
conditional on agreement to mandatory arbitration.\13\ While it 
may not be an explicit condition for admission, it is clear 
from those who advocate on the behalf of America's senior 
citizens and nursing home residents, that residents and their 
families do not feel free to refuse an arbitration agreement. 
Residents and their families do not want to risk being denied 
admission or being perceived as troublemakers for not signing 
documents that they think will never affect them. No one wants 
to consider that the home they have chosen for their mother, 
father, aunt or uncle is going to provide substandard care.\14\
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    \13\Joint Hearing (statement of Kelly Rice-Schild).
    \14\Joint Hearing (statement of Alison Hirschel).
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    Written testimony from Linda Tripp, an Assistant Professor 
at John Marshall Law School and a former attorney in the Office 
of the General Counsel at the U.S. Department of Health and 
Human Services, about an industry presentation on arbitration 
agreements, suggests that nursing home admission is conditional 
on signing a pre-dispute mandatory arbitration agreement. In 
January of 2006, she attended a conference sponsored by the 
Georgia Health Care Association, a group that represents many 
Georgia nursing homes. At a presentation on arbitration 
agreements, conducted by industry lawyers, an audience member 
asked what they should do if a prospective resident did not 
want to sign the arbitration agreement. The lawyer responded 
with brazen advice--people who did not agree to arbitration are 
troublemakers and should not be admitted. Ironically, he went 
on to chastise a mandatory arbitration agreement presented to 
him by a car dealer, which he refused to sign.\15\ Although 
nursing homes have emphasized to Congress that pre-dispute 
mandatory arbitration agreements are not required for admission 
to a facility,\16\ this incident raises concerns about the 
potential for coercion.
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    \15\Joint Hearing (statement of Linda Tripp).
    \16\Joint Hearing (statement of Kelly Rice-Schild).
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    As the National Senior Citizens Law Center, a non-partisan 
organization that has been working with and for nursing home 
residents for more than 30 years, wrote to Senators Martinez 
and Kohl, ``arbitration agreements are being signed at the time 
of admission only because the resident or family member does 
not even notice or understand the arbitration clause, or signs 
the arbitration clause out of fear that otherwise the admission 
will be jeopardized.''\17\
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    \17\Joint Hearing (letter from the National Senior Citizens Law 
Center).
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3. Pre-dispute mandatory arbitration of nursing home cases is unfair

    Arbitration has been a cornerstone of dispute resolution, 
as an alternative to courts, since the enactment of the Federal 
Arbitration Act (FAA) in 1925. However, a decision to arbitrate 
a nursing home dispute should be made only after a dispute 
occurs so that both parties can properly evaluate the 
ramifications of choosing arbitration versus the public court 
system. When they are forced to decide whether to agree to 
mandatory arbitration at the time of admission to a nursing 
facility, prospective residents and their families do not know 
the details of the arbitration process, or how the process will 
impact their particular dispute, should one arise. They likely 
do not know that by choosing arbitration they will have to pay 
high upfront costs, give up rights and protections that would 
otherwise be provided in a court proceeding, or that their 
cases may be decided by an arbitrator who is repeatedly hired 
by nursing homes and who depends on repeat business.
            a. Cost
    Arbitration of a nursing home case may be significantly 
more costly than bringing the claim in court. Pursuing a claim 
in arbitration may be cost prohibitive for many nursing home 
residents and their families. As a result, they will either be 
forced to drop their claims altogether or settle their cases 
for significantly less than the amount they need for medical 
care and other expenses.\18\
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    \18\Joint Hearing (statement of Ken Connor).
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    When nursing home residents sign arbitration agreements, 
the agreements do not disclose the high fees they will have to 
pay in order to file and adjudicate their claims. In addition 
to a filing fee, arbitrators charge fees for every additional 
process required, from hearings to discovery requests to 
document review to subpoenas to written decisions.\19\ Typical 
nursing home arbitration costs thousands of dollars. For 
example, an Indiana family was forced into arbitration against 
Beverly Healthcare in a negligent death case. In doing so, they 
had to pay extensive arbitration fees totaling about $7,550 
just to have their claims heard by an arbitrator. In contrast, 
bringing a civil claim in Indiana costs less than $150.\20\
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    \19\Public Citizen, Pub. No. B9028, The Cost of Arbitration 43 
(2002), at 4-5.
    \20\Interview with George Gray, attorney for the plaintiff (Sept. 
18, 2008).
---------------------------------------------------------------------------
    The American Health Care Association's (ACHA) model 
arbitration agreement requires the use of the National 
Arbitration Forum (NAF) as the arbitration provider.\21\ The 
NAF is one of the few providers that continues to hear pre-
dispute mandatory arbitration in nursing home cases, and its 
fees are prohibitively costly. Public Citizen found that a 
consumer claim for $80,000 filed in Illinois' Cook County 
circuit court would cost a consumer $221, but if arbitrated by 
NAF, the same claim would cost $11,625, 5,260 percent more 
expensive than court.
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    \21\``Resident and Facility Arbitration Agreement,'' model 
agreement provided to Subcommittee staff by the American Health Care 
Association.
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    Under NAF's fee schedule, to simply file a claim for less 
than $75,000, a nursing home resident would have to pay 
approximately $250.\22\ Then, NAF charges additional fees for a 
variety of procedural tasks, such as discovery requests, 
subpoenas, hearings, writing findings, and written decisions. 
These are all items for which courts do not charge.\23\ To file 
a claim for $75,000 or more, which would include most of the 
wrongful death and negligent injury claims brought by nursing 
home residents, the claimant must pay a filing fee ranging from 
$300 to $1,750, depending on the amount of the claim.\24\ Thus, 
the more seriously injured a nursing home resident is, the more 
money he or she will be required to pay up front to arbitrate 
their claim. On top of filing fees, fees for procedural tasks 
range from $500 to $1,500 each, and arbitrators bill their time 
at an hourly rate.\25\
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    \22\Public Citizen, supra n. 18, at 1-2.
    \23\Id. at 2-5.
    \24\Id at 6.
    \25\Id. at 6-8.
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            b. Unfair procedures
    The procedural rules of arbitration are often unfair to 
nursing home residents. Arbitrators, unlike judges and juries, 
do not have to follow prior court or arbitral decisions.\26\ 
They are also not bound by statutory rules of evidence or 
procedure.\27\ Most providers have some form of procedural 
rules, but they are not mandatory and they are not reviewable 
by a judge. Judges, on the other hand, must follow statutory 
court rules and risk being overturned on appeal if they fail to 
apply them properly. This accountability, unavailable in 
arbitration, is critical to ensuring a predictable legal system 
to prove complex negligence and wrongful death cases. In 
addition, arbitrators and arbitration rules have been known to 
limit the discovery process by limiting the number of witness 
depositions, experts and subpoenas. These restrictions 
significantly inhibit the ability of nursing home residents to 
obtain information that is necessary for presenting and proving 
their case.\28\
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    \26\Joint Hearing (statement of AARP).
    \27\``The Arbitrator shall determine the admissibility and weight 
of evidence and shall not be bound by rules of evidence.'' NAF Code of 
Procedure, available at http://www.adrforum.com/users/naf/resources/
20070801CodeOfProcedure.pdf; Peter B. Rutledge, Toward a Contractual 
Approach for Arbitral Immunity, 39 GA. L. Rev. 151, 167 (2004).
    \28\Joint Hearing (statement of Ken Connor).
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            c. Arbitrator bias
    The NAF has been criticized recently for the 
disproportionate number of business wins in the arbitration 
cases it oversees. Serious concerns have been raised about 
arbitrators' ties to the industry that they service.\29\ Most 
arbitration agreements specify which provider of arbitration 
must be used. As mentioned above, AHCA's model agreement 
requires the use of NAF. Arbitrators who work for NAF have a 
personal financial incentive to favor nursing facilities 
because the facility chooses NAF as the provider and the 
individual arbitrators for each case. If NAF's arbitrators are 
not favorable, the facility will either stop using a particular 
arbitrator or find another arbitration provider.
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    \29\Joint Hearing (statements of Ken Connor, Alison Hirschel and 
AARP).
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    Lawmakers, former arbitrators and advocates for nursing 
home residents have expressed concerns about how the NAF's 
procedures and rules create a bias in favor of large 
corporations. Elizabeth Bartholet, a Harvard Law Professor and 
former NAF arbitrator, testified at a Senate Judiciary 
Committee hearing about her employment at NAF. In 17 of the 18 
consumer cases in which she served as an arbitrator, she ruled 
in favor of the corporate party. In her eighteenth and final 
case, she awarded $48,000 in damages to a consumer. After that 
decision, Dr. Bartholet was removed from the 11 other pending 
cases that she was scheduled to arbitrate.\30\
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    \30\Robert Berner, Brian Grow & Susann Rutledge, Banks vs. 
Consumers (Guess Who Wins), Business Week, Jun. 16, 2008, at 72.
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    Dr. Bartholet believes that because NAF and its arbitrators 
depend on repeat business, the system is skewed in favor of the 
corporations. She testified that ``there is a very real risk 
that the NAF pool of arbitrators is overwhelmingly stacked 
against the consumer, with arbitrators either being removed as 
I was because they have decided a case for the consumer, or 
arbitrators being pressured into always ruling for the repeat 
player companies out of fear of being removed from cases.'' In 
fact, she confronted two NAF administrators about her suspicion 
that she was removed because of her one ruling in favor of a 
consumer and neither denied it.\31\ Other former arbitrators, 
including former West Virginia State Supreme Court Justice 
Richard Neely, have criticized the NAF for lack of 
impartiality.\32\
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    \31\Courting Big Business: The Supreme Court's Recent Decisions on 
Corporate Misconduct and Laws Regulating Corporations Before S. Comm. 
on the Judiciary, 110th Cong. 5 (2008) (statement of Elizabeth 
Bartholet).
    \32\Id.
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    Nursing home arbitration agreements that permit the 
claimant to choose one of the arbitrators does not solve the 
problem. Nursing homes have an inherent advantage in choosing a 
favorable arbitrator because they are repeat players and have 
access to insider information about arbitrators they have used 
in previous cases. In contrast, residents have no prior 
experience with any particular arbitrators and they cannot 
access any of the arbitrators' decisions because they are not 
made public. Therefore, the resident has little chance of 
uncovering an arbitrator's potential bias.
            d. Unfairness inhibits access to justice
    The inherent unfairness in nursing home arbitration 
ultimately results in preventing access to justice for one of 
our most vulnerable populations. With its high costs, lack of 
rules of evidence and procedure, and biased arbitrators, 
nursing home residents' cases that are subject to mandatory 
arbitration are doomed from the start. Residents and their 
families will either not be able to afford the high cost of 
pursuing arbitration on their own, or they will not be able to 
find an attorney willing to take a chance on a process that 
they know is substantially skewed against them, in favor of 
nursing homes. Because of arbitration's inherent bias against 
nursing home residents, lawyers feel that the deck is so 
stacked against them that they turn down meritorious cases 
because they are subject to arbitration.\33\
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    \33\A plaintiff's lawyer, A. Lance Reins, represented the estate of 
a woman who had died a day after her daughter took her to a hospital 
because the nursing home refused to call an ambulance. Arbitration 
awarded $90,000 to the family, but Mr. Reins' expenses outweighed costs 
he spent working on the case. Nathan Koppel, Nursing Homes, in Bid to 
Cut Costs, Prod Patients to Forgo Lawsuits, Wall Street Journal, Apr. 
11, 2008, p. 1; Joint Hearing (statement and response to followup 
questions of Ken Connor).
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4. Importance of the civil justice system to nursing home reform

    Many long-term care facilities provide high quality care, 
but there are also too many facilities that cause harm to 
patients because of serious quality problems. While state and 
Federal regulatory agencies work hard to oversee facilities, 
enforce standards of care, and penalize for deficiencies, it is 
impossible for them to investigate adequately every case 
involving injury and death related to substandard care.\34\ 
Often, by the time a government entity is involved in an 
instance of injury or death, they are unable to collect 
information and evidence they need to reach a conclusion on the 
cause. Thus, many incidents of abuse, neglect and harm go 
unpunished.\35\
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    \34\Joint Hearing (statements of Alison Hirschel and AARP).
    \35\Joint Hearing (statement of Alison Hirschel).
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    As Senator Martinez pointed out at the joint hearing: 
``[T]he prospects of patients and their families being able to 
file a complaint in the civil justice system may be the only 
way of holding nursing homes accountable. . . . [I]t is a way 
of forcing the industry to regulate itself because we do know 
that the civil justice system complements the public regulatory 
system in its efforts to improve the quality of care for all 
residents.''\36\ The civil justice system provides an important 
incentive for nursing homes without burdening the state and 
Federal oversight agencies, funded by taxpayer dollars, with 
fact intensive and time consuming investigations that are 
required for complicated cases alleging negligent care.
---------------------------------------------------------------------------
    \36\Joint Hearing.
---------------------------------------------------------------------------
    Litigation in the civil justice system can lead to 
significant changes in facilities' care practices and can 
remove owners and managers that refuse to provide good care. 
Ken Connor, an attorney who represents nursing home residents, 
believes: ``[N]ursing homes are not likely to modify their 
wrongful behaviors until they learn that it costs them more to 
do business the wrong way than to do it the right way. . . . 
Consequently, court awards are more likely to have a deterrent 
impact on nursing home misconduct than awards in settings 
dictated in an agreement for pre-dispute binding mandatory 
arbitration.''\37\
---------------------------------------------------------------------------
    \37\Joint Hearing (answers to followup questions of Ken Connor).
---------------------------------------------------------------------------
    Some attorneys have used the civil justice system to ensure 
permanent changes in facilities' practices in order to benefit 
existing and future residents.\38\ For example, in a Texas 
case, a resident died in a nursing facility when she was 
strangled after being pinned between her bed and bedrail. 
Settlement of the wrongful death case against the facility 
included a lengthy written agreement requiring the facility to 
establish extensive new policies and procedures to reduce its 
use of physical restraints.\39\ The facility reduced its use of 
restraints by more than 90 percent. Accountability in the civil 
justice system would prompt improvement at nursing facilities 
that consistently provide poor quality of care, or facilities 
that go in and out of compliance with quality standards from 
year-to-year.\40\
---------------------------------------------------------------------------
    \38\Joint Hearing (statement of Center for Medicare Advocacy).
    \39\Trew v. Smith and Davis Manufacturing Co., Inc., No. SF 95-354C 
(N.M. Dist. Ct. Jul. 1996).
    \40\Joint Hearing (statement of Center for Medicare Advocacy).
---------------------------------------------------------------------------
    Finally, the civil justice system provides the public with 
information about the performance of nursing homes. This is 
critical in helping the public make informed decisions when 
choosing a facility. Arbitration, in contrast, takes place in a 
private setting with all documents and proceedings closed to 
the public. No data is released or published about the nursing 
home cases that have been arbitrated or settled.\41\ This lack 
of transparency is particularly troubling since most of the 
claims for abuse, neglect, and substandard care are occurring 
at facilities that collectively receive billions of taxpayer 
dollars. Almost 90 percent of all nursing homes receive funding 
from Medicare and Medicaid. It is simply bad public policy to 
allow these claims to disappear from the courts and the public 
scrutiny they provide.
---------------------------------------------------------------------------
    \41\Joint Hearing (statement of Linda Tripp); S. 1782, the 
Arbitration Fairness Act of 2007, Hearing Before Subcomm. on the 
Constitution of the H. Comm. on the Judiciary, 110th Cong. (2008) 
(statement of Paul Bland).
---------------------------------------------------------------------------

5. Judicial review does not adequately protect nursing home residents 
        from unfair predispute mandatory arbitration agreements

    Nursing home residents and their families should not bear 
the burden of mounting costly and time consuming challenges to 
unfair agreements. A bright line rule that prohibits pre-
dispute mandatory arbitration agreements would fully protect 
one of the Nation's most vulnerable populations.
    Both State and Federal law provide a mechanism to 
invalidate an unfair arbitration agreement. However, the law 
requires nursing home residents to overcome a very high legal 
threshold which limits the ability of judges to invalidate 
unfair arbitration agreements. Numerous cases demonstrate that 
even in the most egregious cases where nursing home residents 
or their families were forced, either directly or indirectly, 
to sign an agreement, the law is not on their side.
    In most jurisdictions, judges must enforce an arbitration 
agreement unless the nursing home resident makes a valid 
contract defense. Victims of nursing home abuse usually 
challenge an arbitration agreement on the basis that the 
agreement is unconscionable. The elements of an 
unconscionability defense vary slightly from state to state, 
but they generally require a showing of both procedural and 
substantive unconscionability. Procedural unconscionability is 
generally defined as an absence of meaningful choice on the 
part of one of the parties.\42\ Substantive unconscionability 
exists when the contract provisions unreasonably favor one 
party over the other.\43\
---------------------------------------------------------------------------
    \42\Raper v. Oliver House, LLC, 637 S.E.2d 551, 555 (N.C. Ct. App. 
2006) (citing Martin v. Sheffer, 403 S.E.2d 555, 557 (N.C. Ct. App. 
1991).
    \43\Hill v. NHC HealthCare/Nashville, LLC, 2008 WL 1901198, 6 
(Tenn. Ct. App. 2008), quoting Brenner v. Little Red Sch. House, Ltd., 
274 S.E.2d 206, 210 (N.C. 1981).
---------------------------------------------------------------------------
    The standards for invalidating arbitration set a very high 
bar for nursing home residents. For example, if a court does 
not find both procedural and substantive elements of 
unconscionability, then injured nursing home residents will 
lose. This means that even when the circumstances surrounding 
the agreement process were unfair, unless the terms of the 
agreement are unreasonably one-sided, the court must compel 
arbitration. Furthermore, an arbitration agreement must be 
enforced even when provisions of the arbitration agreement 
favor one party. It is only if the agreement unreasonably 
favors one party or if it is so one-sided that a judge may 
invalidate it, presuming there was also sufficient procedural 
unconscionability. Thus, an agreement entered into under unfair 
procedures can pass legal muster even when it is unfavorable to 
a nursing home resident or one-sided in favor of the nursing 
home.
    Nursing home residents have challenged unfair arbitration 
agreements, only to run into law that favors enforcement of 
arbitration. Although some courts have invalidated nursing home 
arbitration agreements, in many of the most egregious cases, 
judges have been obligated by the law and legal precedent to 
enforce arbitration agreements.
    In an Ohio case, a court enforced an arbitration agreement 
even though it had serious concerns about the procedural 
fairness of the agreement. The court found that when the 
nursing home resident entered the facility directly from the 
hospital she was emotionally stressed and cognitively impaired. 
At the time she signed the agreement, she suffered from bouts 
of confusion and had no family, friends or counsel helping her 
through the admissions process. The court found that she had 
extreme physical difficulty signing the documents, suggesting 
an inability to fully read and understand the contract.\44\ The 
court recognized that: ``[F]or many individuals . . . admission 
to a nursing home is the final step in the road of life . . . 
In most circumstances, it will be difficult to conclude that 
such an individual has equal bargaining power with a 
corporation.'' Despite these serious reservations, the court 
compelled arbitration because the agreement was not 
substantively unfair.\45\ This means that as long as a facility 
can draft an iron clad agreement that will pass the substantive 
unconscionability test, it can coerce an unknowing nursing home 
resident to sign the agreement and still get the court's 
blessing.
---------------------------------------------------------------------------
    \44\Manley v. Personacare, 2007 WL 210583 para.14 (Ohio Ct. App. 
2007).
    \45\Id. at para.42.
---------------------------------------------------------------------------
    In some cases, courts will not even consider the substance 
of an agreement if it does not find any procedural 
unconscionability. In a Florida case, a court held that an 
arbitration clause was not procedurally unconscionable, despite 
the resident's daughter's contention that no one explained to 
her what she was signing or what arbitration meant. The court 
said that because both procedural and substantive 
unconscionability would be required to find the agreement 
unenforceable, the court declined to address the issue of 
substantive unconscionability.\46\
---------------------------------------------------------------------------
    \46\Raper v. Oliver House, LLC, 637 S.E.2d 551, 555 (N.C. Ct. App. 
2006).
---------------------------------------------------------------------------
    Even in the most egregious cases of procedural 
unconscionability, courts have still enforced arbitration. In 
Texas, a court enforced an arbitration agreement signed by the 
resident's son who could not read or write in English. The 
agreement was not fully explained to him and he was told that 
in order to admit his mother into the facility, he must sign 
the arbitration agreement.\47\ In another case, a court 
compelled arbitration against the estate of a woman who died in 
a nursing home. Although the woman was legally blind and could 
not understand the contents of the papers she signed, the court 
said that no one can argue against the enforcement of a 
contract just because they signed it without reading it.\48\
---------------------------------------------------------------------------
    \47\In re Ledet, 2004 WL 2945699 (Tex. App. 2004).
    \48\Estate of Etting v. Regent's Park at Aventura, Inc., 891 So.2d 
558 (Fla. Dist. Ct. App. 2004).
---------------------------------------------------------------------------
    Several states have recognized the vulnerability of elderly 
people during the nursing home admissions process and the 
significance of foregoing the right to go to court by agreeing 
to pre-dispute mandatory arbitration. States have enacted 
legislation to limit or void the enforceability of pre-dispute 
mandatory arbitration agreements in nursing home cases.\49\ 
However, these attempts to protect nursing home residents have 
been thwarted by the Federal Arbitration Act (FAA).\50\ For 
example, in Georgia, a Federal district court held that nursing 
homes in the aggregate involve sufficient levels of interstate 
commerce for the FAA to preempt a Georgia law.\51\ Thus, the 
court upheld a pre-dispute arbitration agreement between a 
nursing home and a resident while noting that the agreement 
would be invalid under Georgia law.\52\
---------------------------------------------------------------------------
    \49\Ga. Code Ann. Sec. 9-9-62 (West 2007); 210 Ill Comp. Stat. Ann. 
45/3-601, 06-07 (West 2008); Okla Stat. tit. 63, Sec. 1-1939 (West 
2008).
    \50\See Owens v. Coosa Valley Health Care, Inc., 890 So.2d 983 
(Ala. 2004); Washburn v. Beverly Enters.-Ga., Inc., 2006 WL 3404804 
(S.D. Ga. 2006); Federal Arbitration Act, 9 U.S.C.A. Sec. 1-2 (West 
2008).
    \51\Washburn, 2006 WL 3404804.
    \52\Id.
---------------------------------------------------------------------------

6. Regulating arbitration agreements does not mitigate the problems 
        with pre-dispute mandatory arbitration in nursing home cases

    Efforts to remedy an inherently unfair system of pre-
dispute mandatory arbitration agreements in nursing home 
admissions with regulation and reform do not address the 
inherent unfairness of such arbitration. Critics of this bill 
have proposed reforms such as printing the agreement in larger 
or bolder print, or creating requirements for certain 
explanations. These reforms would not be effective. Altering 
the agreement's format or presentation will not change the fact 
that it involves dozens of pages of technical legalese, or that 
the admissions process is emotional, stressful, and often 
involving people with compromised cognitive or physical 
abilities.\53\ Additionally, even with reforms, residents and 
their families are concerned about being denied admission and 
they do not want to be viewed as troublemakers.\54\
---------------------------------------------------------------------------
    \53\Joint Hearing (responses of Alison E. Hirschel to questions 
from Sen. Kohl).
    \54\Id.
---------------------------------------------------------------------------
    A proposal to require that the arbitration agreement have a 
30-day ``cooling off'' period after signing, during which a 
resident may revoke the agreement, will not help injured 
residents. Kenneth L. Connor, who has represented many victims 
of nursing home abuse, testified that most residents or 
families only learn of the arbitration agreement after an 
injury has occurred.\55\ Unless an incident occurred within the 
first 30 days, residents or their families would have little 
reason to consult a lawyer regarding a contract that had 
already been signed.\56\
---------------------------------------------------------------------------
    \55\Id.
    \56\Id.
---------------------------------------------------------------------------

                      C. EFFECT OF THE LEGISLATION

    By prohibiting pre-dispute mandatory arbitration agreements 
in nursing home contracts, S. 2838 will preserve the right of 
residents and their families to hold facilities accountable in 
court for neglect, abuse, and substandard care. Restoring 
accountability for nursing homes will encourage poorly-
performing facilities to improve systematically care and save 
taxpayers from the extra expense of medical care for injuries 
caused by negligent or abusive care.\57\
---------------------------------------------------------------------------
    \57\Joint Hearing (statement of the Center for Medicare Advocacy).
---------------------------------------------------------------------------
    Post-dispute arbitration will remain an option for dispute 
resolution because the bill only prohibits pre-dispute 
mandatory nursing home arbitration agreements. If both parties, 
the resident and facility, mutually and voluntarily agree to 
proceed with arbitration after the dispute occurs, they will be 
free to do so. However, post-dispute arbitration will likely 
only be an option if the parties believe that the system is 
fair. If the process is fair, residents and their lawyers will 
view it as a viable alternative to court that is indeed more 
timely, cost effective and less adversarial.
    Critics of the bill argue that eliminating pre-dispute 
mandatory arbitration agreements in nursing home contracts will 
effectively eliminate all nursing home arbitration.\58\ This 
suggests that the process is not as fair as its proponents 
claim. If that is the case, then nursing facilities that want 
to resolve disputes through arbitration will have an incentive 
to use arbitration providers that will attract voluntary, post-
dispute agreements to arbitration. In turn, arbitration 
providers will have an incentive to create a process that is a 
cost effective and fair alternative to the court system for 
both parties. If this occurs, then both parties will at least 
consider, and many may choose, arbitration.
---------------------------------------------------------------------------
    \58\Joint Hearing (statement of Stephen Ware).
---------------------------------------------------------------------------
    Concerns have been raised about whether S. 2838 will have a 
financial impact on nursing homes and their ability to stay in 
business by making it more likely that cases against nursing 
homes will be heard in court, rather than resolved through 
private arbitration. Ms. Hirschel, an advocate for the elderly 
and nursing home patients, responded directly to the concern of 
how facilities will deal with cost: ``The first thing is 
[facilities] can provide good care. There is no evidence of a 
spate of frivolous lawsuits. In fact, the Harvard study in 2003 
showed that in more than half the cases that were filed against 
nursing homes, the resident died. So these are not--even 
defense lawyers for the industry have acknowledged that these 
cases are not frivolous. If you provide good care, you do not 
get sued for those very expensive, egregious cases.''\59\
---------------------------------------------------------------------------
    \59\Joint Hearing. (testimony of Alison Hirschel), citing David G. 
Stevenson and David M. Studdert, The Rise Of Nursing Home Litigation: 
Findings From A National Surveys Of Attorneys, Health Affairs, Vol. 22, 
No. 2, 219, 222 (March 2003).
---------------------------------------------------------------------------
    Ms. Hirschel's comment underscores data that show serious 
quality of care problems in nursing facilities and the need for 
greater accountability. A recent Department of Health and Human 
Services report by the Department's inspector general found 
that in 2007, 90 percent of nursing homes were cited for 
violations of federal health and safety standards and 17 
percent of nursing homes were found to have deficiencies that 
caused ``actual harm or immediate jeopardy'' to patients.\60\ 
These deficiencies included infected bedsores, medication mix-
ups, poor nutrition, and abuse and neglect of patients. 
Meanwhile, evidence suggests that this poor care is the result 
of understaffing that has come in the wake of large private 
investment groups buying major nursing home chains and making 
large profits, which are hidden from public scrutiny. According 
to data from the Centers for Medicare and Medicaid Services, 60 
percent of homes bought by large private equity groups from 
2000 to 2006 have cut the number of clinical registered nurses, 
in some cases to below legal staffing requirements.\61\
---------------------------------------------------------------------------
    \60\Robert Pear, Violations Reported at 94% of Nursing Homes, New 
York Times, Sept. 29, 2008, A17.
    \61\Charles Duhigg, ``At Many Homes, More Profit and Less 
Nursing,'' New York Times, September 23, 2007.
---------------------------------------------------------------------------
    Finally, the cost of hospitalization and medical care for 
nursing home residents injured by negligent care strains the 
Medicare system. Taxpayers pay for the costs of additional 
patient care needed as a result of avoidable injuries due to 
nursing home negligence. From 2004 to 2006, preventable 
injuries and deaths in long-term care facilities cost the 
Medicare program $8.8 billion.\62\ Since 2001, re-
hospitalization of Medicare residents for conditions related to 
``worsening quality'' of care has increased 9 percent.\63\ By 
holding facilities more accountable for their poor care, 
facilities will have a greater incentive to improve care. 
Improving care will benefit Medicare and Medicaid by reducing 
costs.
---------------------------------------------------------------------------
    \62\HealthGrades Annual Patient Safety in American Hospitals Study, 
http://www.healthgrades.com/media/DMS/pdf/
HealthGradesPatientSafetyRelease2008.pdf (last accessed Oct. 1, 2008).
    \63\MedPAC, Report to the Congress: Medicare Payment Policy, 
Chapter 2D, March 2008.
---------------------------------------------------------------------------

          II. History of the Bill and Committee Consideration

                      A. INTRODUCTION OF THE BILL

    The Fairness in Nursing Home Arbitration Act was introduced 
on April 9, 2008 by Senators Mel Martinez (R-FL) and Herb Kohl 
(D-WI). On June 18, 2008, the Subcommittee on Antitrust, 
Competition Policy, and Consumer Rights held a joint hearing 
with the Special Committee on Aging, ``S. 2838, the Fairness in 
Nursing Home Arbitration Act.'' Five witnesses testified at the 
hearing: Mr. David Kurth, Ms. Alison Hirschel, Ms. Kelly Rice-
Schild, Mr. Ken Connor and Mr. Stephen Ware.

                       B. COMMITTEE CONSIDERATION

    On September 11, 2008, the Judiciary Committee met in 
executive session to consider S. 2838. No amendments were 
offered and the committee approved the bill by voice vote. 
Senators Coburn and Sessions were recorded as having voted 
``no'', and Senator Grassley requested to be recorded as voting 
``present''.

              III. Section-by-Section Summary of the Bill

Section 1. Short title

    This section provides that the legislation may be cited as 
the ``Fairness in Nursing Home Arbitration Act.''

Section 2. Definitions

    This section amends section 1 of the Federal Arbitration 
Act (9 U.S.C. Sec. 1) to include a specific definition of 
``long-term care facility.'' A ``long-term care facility'' is 
defined as any skilled nursing facility, as defined in 1819(a) 
of the Social Security Act;\64\ any nursing facility as defined 
in 1919(a) of the Social Security Act;\65\ or any public 
facility, proprietary facility, or facility of a private 
nonprofit corporation that makes certain supportive services 
available to adult residents who live on the premises. The 
definition specifies that institutions whose primary purpose is 
educational or drug treatment are not covered by the Act.
---------------------------------------------------------------------------
    \64\42 U.S.C. 1395i-3 (2006).
    \65\42 U.S.C. 1396r (2006).
---------------------------------------------------------------------------

Section 3. Validity and enforceability

    This section amends section 2 of the FAA (9 U.S.C. Sec. 2) 
to ban enforcement of pre-dispute arbitration agreements 
between long-term care facilities and residents, or anyone 
acting on behalf of the resident. This section also states that 
disputes as to whether the Act applies shall be resolved by the 
court, rather than through arbitration.

Section 4. Effective date

    This section provides that the Act shall apply to claims 
and disputes arising on or after the date of enactment.

             IV. Congressional Budget Office Cost Estimate

    The Committee sets forth, with respect to the bill, S. 
2838, the following estimate and comparison prepared by the 
Director of the Congressional Budget Office under section 402 
of the Congressional Budget Act of 1974:

                                                September 19, 2008.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2838, the Fairness 
in Nursing Home Arbitration Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Leigh Angres.
            Sincerely,
                                                   Peter R. Orszag.
    Enclosure.

S. 2838--Fairness in Nursing Home Arbitration Act

    S. 2838 would make certain pre-dispute arbitration 
agreements between the operators of long-term care facilities 
and their residents not valid or enforceable. In a pre-dispute 
arbitration agreement, the parties agree to arbitrate a 
potential dispute rather than seek redress through the courts. 
The bill would apply to any dispute or claim arising on or 
after the date of the bill's enactment. Under current law, the 
operators of long-term care facilities can include clauses in 
contracts with residents that provide for mandatory arbitration 
if a dispute should arise.
    Under the bill, CBO expects that the majority of disputes 
that could arise between a resident and a facility operator 
would be litigated in state courts and, therefore, would not 
substantially affect the caseload of the federal court system. 
Cases challenging the nullification of a particular arbitration 
agreement would be addressed in a federal court, but CBO 
expects that any such cases would have an insignificant effect 
on the overall workload of the courts. Therefore, CBO estimates 
that implementing S. 2838 would have no significant cost over 
the next five years. Enacting the bill would have no effect on 
direct spending or revenues.
    By restricting the provisions that could be included in 
contracts between long-term care facilities and residents of 
such facilities (or their representatives), S. 2838 would 
impose an intergovernmental and private-sector mandate as 
defined in the Unfunded Mandates Reform Act (UMRA). Based on 
information from industry sources, CBO estimates that the 
direct cost to comply with the mandate to state, local, and 
tribal governments and the private sector would fall below the 
annual thresholds established in UMRA for intergovernmental and 
private-sector mandates ($68 million and $136 million, 
respectively, in 2008, adjusted annually for inflation).
    On September 2, 2008, CBO transmitted a cost estimate for 
H.R. 6126, the Fairness in Nursing Home Arbitration Act of 
2008, as ordered reported by the House Committee on the 
Judiciary on July 30, 2008. The two versions of the legislation 
are similar, and CBO's estimate of the federal costs are the 
same. In addition, both H.R. 6126 and S. 2838 contain a mandate 
by invalidating clauses in agreements made or amended after the 
date of enactment. However, the mandate in S. 2838 would also 
apply to existing agreements. The direct cost to comply with 
the mandates in both bills would fall below the annual 
thresholds established in UMRA.
    The CBO staff contacts for this estimate are Leigh Angres 
(for federal costs), Melissa Merrell (for the state and local 
impact), and Paige Piper/Bach (for the private-sector impact). 
This estimate was approved by Peter H. Fontaine, Assistant 
Director for Budget Analysis.

                    V. Regulatory Impact Evaluation

    In compliance with rule XXVI of the Standing Rules of the 
Senate, the Committee finds that no significant regulatory 
impact will result from the enactment of S. 2838.

                             VI. Conclusion

    The Fairness in Nursing Home Arbitration Act, S. 2838, is a 
bipartisan, narrowly targeted measure, that will ensure nursing 
home residents and their families are not forced unknowingly 
into arbitration when serious injuries or death result at the 
hands of poor nursing home care.

                          VII. Minority Views

                              ----------                              

         MINORITY VIEWS FROM SENATORS KYL, SESSIONS AND COBURN

    This bill is the second item that is straight from the 
trial bar's legislative agenda that this committee has 
dutifully reported to the full Senate this Congress. Last year, 
the Judiciary Committee voted to gut arbitration contracts for 
livestock and poultry growers. See S. Rep. 110-190, pp. 11-13 
(Minority Views). Piece by piece, ATLA and its allies in the 
Senate are dismantling the alternatives to litigation that have 
sheltered many important American industries from a rapacious 
trial bar, out-of-control jury awards, and a system that 
delivers most of the proceeds of litigation to the trial 
lawyers. This is the trial-lawyer agenda at work. The majority 
even goes so far as to cite, as evidence that the American 
people want to be relieved of the right to enter into 
arbitration agreements--what else?--why, an ATLA press 
release!\1\
---------------------------------------------------------------------------
    \1\See footnote 12 of the draft majority committee report, citing 
``Press Release, American Association for Justice, New Poll: Americans 
Say ``No Thanks'' to Binding Arbitration'' (May 19, 2008). ``American 
Association of Justice'' is the latest name used by ATLA, the 
Association of Trial Lawyers of America.
---------------------------------------------------------------------------
    This month, the Judiciary Committee is going after nursing 
home operators. The bill that it has reported would subject 
nursing homes to a litigation environment of trial-lawyer-
driven class actions and extreme jury awards, where a single 
verdict could cripple a nursing home, or even a chain of 
businesses. In many places, no liability insurer would even 
offer coverage to nursing homes were this bill to be enacted. 
Indeed, it is very likely that in several states, the 
consequences of this bill would be that nursing-home chains 
would withdraw from the state, and that some nursing homes 
would simply shut their doors. Elderly people whose families 
can no longer attend to their medical needs would have nowhere 
to go to receive the care that they need. Some may find that 
their only option is a nursing home in another state, far from 
their family and loved ones.
    One might think that a congressional committee charged with 
oversight of judiciary matters might balk at a request from the 
trial bar to pass legislation that will reduce the quality and 
availability of nursing-home care, all so that trial lawyers 
can collect more fees. But not in this Congress.\2\ The trial 
lawyers are calling the shots, and they are getting what they 
want.
---------------------------------------------------------------------------
    \2\Lest any one suggest that S. 2838's fig leaf of Republican 
sponsorship somehow makes it a bipartisan project in any meaningful 
sense of the word, it should be noted that of the 29 sponsors of this 
bill and H.R. 6126, its House companion, 27 are Democrats.
---------------------------------------------------------------------------
The 1990s litigation explosion and the need for arbitration
    Shortly after this bill was first noticed for mark up, 
Senator Kyl received a letter from Norman Estes, the operator 
of NHS nursing homes, a chain of nursing homes in the 
Southeast.\3\ The letter describes the litigation environment 
that nursing homes began to encounter in the 1990s. It cites 
jury awards, driven by passion rather than reason, that 
repeatedly reached into the tens of millions of dollars, and 
one that reached $78 million:

    \3\The full letter from Mr. Estes is included as an attachment to 
this statement.
---------------------------------------------------------------------------
          In the early 90's, several states became venues for 
        extremely aggressive personal injury litigation against 
        nursing homes. Particular states saw drastic increases 
        in the number of lawsuits against nursing homes along 
        with extreme jury verdicts reaching tens of millions of 
        dollars. In the late 1990's and early part of this 
        decade, one law firm won a series of jury verdicts in 
        Florida ranging from $10 million to $20 million. In 
        2001, the same law firm received a jury verdict of $78 
        million from an Arkansas jury. Increased litigation in 
        these states had less to do with the quality of care 
        provided than with the extremely emotionally charged 
        cases and dominant legal and political standing of some 
        extremely talented plaintiff's attorneys.

    Mr. Estes's account is confirmed by that of Kelley Rice-
Schild, the owner and manager of a small nursing home in Miami, 
Florida that has been operated by her family for four 
generations. Ms. Rice-Schild's testimony before this committee, 
on June 18, 2008, also described a surge in litigation against 
nursing homes that occurred in the 1990s:

          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. 
        . . . This trend was especially true in states such as 
        Arkansas, Texas, and my home state of Florida, 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.

    Mr. Estes and Ms. Rice-Schild described how the trial bar's 
targeting of nursing homes led liability insurers to stop 
offering insurance to nursing homes in some states. Ms. Rice-
Schild also noted in her committee testimony that insurers 
began to charge her more for her policy than the policy itself 
would cover:

          [T]here was an explosion in the cost of obtaining 
        insurance to protect operators from the risks 
        associated with a tort environment that often 
        encouraged unsubstantiated claims against long term 
        care providers. This trend included significant 
        advertising--including highway billboards--to encourage 
        consumers to sue their long term care provider. Even 
        following the passage of tort reform legislation in 
        Florida in 2001, insurance is not widely available and 
        for most operators unaffordable, which forced several 
        companies to no longer provide care and services to the 
        frail elderly in my home-state. Today, my facility is 
        covered by a $25,000 General and Professional Liability 
        policy--for which we pay $37,000 annually. To carry 
        more insurance, even if I could afford to do so, simply 
        makes my facility a target for litigation--despite our 
        over-60 year history of providing nothing but the 
        highest level of quality care.

    Similarly, Mr. Estes, in his August 20 letter, notes that:

          In Alabama, Arkansas, Florida and Missouri, where our 
        facilities are located, many insurance underwriters 
        simply stopped offering liability insurance for nursing 
        homes. In Florida, there have been periods of time when 
        traditional liability insurance for nursing homes was 
        not available at all, from any company, at any price. 
        Throughout the industry, liability insurance became so 
        expensive that many nursing home operators simply could 
        not afford it.

    Mr. Estes also describes the impact that a litigation-
driven absence of insurance has on both nursing homes and 
patients. A lack of insurance not only threatens the viability 
of the nursing home, it also means that patients who are 
negligently injured will not receive compensation:

          Insurance approaches that left nursing homes 
        underinsured or with practically no insurance fostered 
        an environment where one large claim was enough to 
        force a nursing home to cease operating. That same 
        environment also all but guaranteed that patients with 
        legitimate claims that should be covered by insurance 
        were left with little financial compensation, or even 
        none at all.

S. 2838 would retroactively gut state and federal arbitration 
        agreements

    The majority defensively insists that ``[t]his legislation 
is prospective.'' Not so. The bill clearly applies 
retroactively--it not only prevents parties from entering into 
enforceable arbitration agreements in the future, it also voids 
arbitration agreements that were made years before this 
legislation was even proposed. It simply takes pre-existing 
contracts and tears them up.
    Moreover, the bill's violence against private contracts is 
not limited to agreements that are enforceable under federal 
law. The bill also reaches into state jurisdiction, vitiating 
contracts that were voluntarily entered into between parties 
who reside in the same state and whose agreements would be 
enforceable in state courts as a matter of state law. S. 2838 
overrides the laws of all 50 states, preventing any state from 
preserving enforceable arbitration as an alternative to 
courtroom litigation.
    The majority insists that S. 2838 would not gut 
arbitration, because parties would still agree to arbitration 
after a dispute arose. Stephen Ware, a professor of law at the 
University of Kansas, put the lie to these claims in his June 
18, 2008 testimony before the committee. He noted the obvious--
that ``S. 2838 would `gut' arbitration of nursing-home 
disputes,'' and that ``enactment of this bill would largely end 
arbitration of disputes between'' nursing homes and their 
residents. As Professor Ware explained, ``arbitration almost 
never occurs except as a result of pre-dispute agreements.'' He 
went on to describe how once a dispute has arisen, either one 
side or another is likely to reject arbitration for tactical 
reasons:

          Once a dispute arises, parties are unlikely to 
        contract out of the default process because of one 
        party's self interest in whatever tactical advantages 
        it can gain from litigation, whether from an easily-
        impassioned jury or expensive and time-consuming pre-
        trial discovery and post-trial appeals. Only a naively 
        simplistic view would deny that disputing parties and 
        their lawyers assess the case before them and try to 
        maneuver into a process that is expected to advantage 
        their side. That sort of self-interested maneuvering is 
        inherent in the adversary system and lawyers might not 
        be fully serving their clients if they did not engage 
        in it. (Emphasis added.)

    Professor Ware also debunked the majority's repeated 
characterization of arbitration agreements as ``mandatory 
arbitration.'' As he noted, ``arbitration is not `mandatory' 
but litigation is.'' Parties can refuse to agree to 
arbitration, but they cannot refuse to agree to litigation once 
they have been sued. He concluded that ``[t]o call arbitration 
arising out of form contracts mandatory' is inaccurate 
rhetoric.''
    There is no hiding what this bill would do. It would 
eliminate arbitration for the nursing-home industry. It would 
carve an exception into the Federal Arbitration Act of 1925, 
repealing part of a law that has been in place for over 80 
years. It would retroactively void existing contracts. And it 
would prevent even the states from enforcing arbitration 
agreements between their own residents as a matter of state 
law. This is an extreme bill that will do serious violence to 
an established part of the American legal system. It will gut a 
law that for many nursing homes in America has made the 
difference between being able to continue to serve their 
residents, and being driven out of business by trial-lawyer 
greed.

The majority presents no competent evidence that the arbitration system 
        is unfair

    Surely, one would suppose, that before this committee 
embarked on a path of voiding thousands of private contracts, 
driving nursing homes out of business, and making nursing-home 
care inaccessible to thousands of Americans, the committee 
would have amassed some evidence that this course of action is 
necessary. It would be a reasonable supposition. But it would 
be wrong.
    Section 3 of the majority report devotes several pages to 
``proving'' that nursing-home arbitration is unfair. The 
majority first argues that arbitration is too expensive. Its 
first two pieces of ``evidence'' of the costs of arbitration 
come from: A trial lawyer who sues nursing homes and Public 
Citizen, a fringe group that is financed by trial lawyers. Only 
as its third piece of evidence does the majority finally cite 
the actual fee schedule that is published by the National 
Arbitration Forum, the arbitrator of choice of the American 
Health Care Association. As the majority notes, this fee 
schedule dictates that for filing a small-to-medium arbitration 
claim the fee should be--brace yourselves!--$250. The majority 
also notes that for higher claims, the fee first goes up to 
$300 and can be as much as $1750 for the highest claims.
    As Professor Stephen Ware notes in his written testimony to 
this committee, in the analogous context of employment 
lawsuits, trial lawyers typically demand retainers of $3,000 to 
$3,600. Professor Ware also notes that these lawyers usually 
won't even consider a case unless the damages amount to at 
least $60,000 to $65,000. In other words, even for the most 
expensive cases, the arbitration filing fee is less than half 
of what a lawyer would charge as his initial retainer. But at 
least for low-value cases, one could argue that S. 2838 would 
reduce the up-front fees that an injured nursing-home resident 
seeking redress will end up paying: Such a claimant will pay 
zero, because he will be unable to find any lawyer at all to 
take his case.
    The next point in the majority's brief against arbitration 
is that, under most arbitration procedures, discovery is more 
limited than it is in judicial proceedings--arbitration allows 
fewer depositions, subpoenas, and interrogatories. Well, yes. 
The whole point of arbitration is to have a proceeding that can 
resolve the case more quickly and with less expense to the 
parties. And limiting discovery, by far the most expensive 
element of most litigation, is an integral part of this 
alternative. If the majority presented an argument that the 
discovery limits typically imposed in arbitration prevent 
claimants from being able to present their case--if it could 
present at least one example of such a result--then it would at 
least have some potential problem to address. But the majority 
cites nothing. Nada. Zip. It simply notes that discovery is 
more limited in arbitration. In effect, the majority argues 
that arbitration is a faster, more efficient, and less 
expensive means of resolving disputes.
    The ultimate guarantee that the arbitration system will 
generally be fair to claimants is the judicial review of 
arbitration agreements. As Professor Ware noted in his 
committee testimony:

          The Federal Arbitration Act allows courts to 
        invalidate unconscionable arbitration agreements. And 
        this is not just a theoretical protection. Each year, 
        there are many cases in which courts hold particular 
        arbitration agreements unconscionable. Among these are 
        cases involving nursing homes.\4\

    \4\In a footnote to this last sentence, Professor Ware cites the 
following cases: Romano ex rel. Romano v. Manor Care, Inc., 861 So.2d 
59 (Fla. Ct. App. 4 Dist. 2003); Howell v. NHC Healthcare-Fort Sanders, 
Inc., 109 S.W.3d 731 (Tenn. Ct. App. 2003); Woebse v. Health Care & 
Ret. Corp. of Am., No. 2D06-720, 2008 Fla. App. LEXIS 1446 (Fla. Dist. 
Ct. App. Feb. 6, 2008).
---------------------------------------------------------------------------
    And what evidence does the majority to cite to show that 
the courts have abdicated their duty to supervise arbitration 
agreements, and that they are allowing enforcement of 
agreements that are unreasonable? Section 5 of the majority 
report notes, in italicized outrage, that the courts have said 
that they will only invalidate an arbitration agreement ``if 
the agreement unreasonably favors one party.''
    In other words, the courts themselves, to whom the majority 
would consign all nursing-home injury claims, cannot be trusted 
to preclude enforcement of unreasonable arbitration agreements 
because they will only intervene if the agreement is 
unreasonable. But what's so unreasonable about that?
    The majority's next example of justice laid waste is an 
Ohio case in which a court enforced a nursing-home arbitration 
agreement. And what outrageous standard did the court apply in 
order to reach such a result? Well, in the majority report's 
words, ``the court compelled arbitration because the agreement 
was not substantively unfair.'' Can you imagine that? How could 
anyone oppose S. 2838 when, in the very heart of this country, 
courts are enforcing arbitration agreements that ``[are] not 
substantively unfair?''
    The majority also cites two other cases, one from Texas and 
another from Florida, but makes no effort to show that the 
arbitration system at issue in either of those cases was 
unfair.
    It would be a rare system of adjudication for which, after 
a period of review and analysis, one could not find some room 
for improvement. We would be surprised if there were not at 
least a few arbitration systems that are being used somewhere 
in this country that have rules that are unfair, but that have 
nevertheless been upheld by a court or have so far escaped 
judicial review. Had this committee made an effort to review 
nursing-home arbitration systems used across the United States, 
we are certain that it would have found ways to improve some of 
the systems that are in use.
    But that is not the course upon which this committee has 
embarked. S. 2838 is not an effort to fix arbitration, or to 
improve the system of adjudication used by nursing homes and 
their residents. This bill is designed to gut arbitration. And 
it does so in the complete absence of any legislative record 
that nursing-home arbitration procedures, arbitration outcomes, 
or the judicial policing of the system are inadequate or 
unfair.
    This bill is a trial-lawyer sell out, plain and simple. It 
is designed to enrich the trial bar--which collects more than 
half of the value of all nursing-home-litigation awards--at the 
expense of the public in general and nursing homes and their 
residents in particular. It would subject nursing homes in many 
states to an extortionate and out-of-control litigation system 
that would destroy family businesses that have been built up 
over generations. It would make it impossible for nursing homes 
to obtain liability insurance, forcing many to operate without 
insurance and leaving injured claimants with no compensation. 
And it would inevitably reduce the availability of nursing home 
care across this country, leaving many elderly people who need 
nursing-home care with no option other than to go to a nursing 
home that is far from their family and friends. This bill is a 
travesty. We hope that it never sees the light of day.

                                   Jon Kyl.
                                   Jeff Sessions.
                                   Tom Coburn.
                                ------                                

                              [Attachment]

                                                   August 20, 2008.
Hon. Jon Kyl,
U.S. Senate, Hart Senate Office Building,
Washington, DC.
    Dear Senator Kyl: I am respectfully writing to ask for your 
serious consideration of the negative implications of proposed 
legislation on the quality, accessibility, and even viability 
of long-term care in America. The Senate is expected to mark up 
S. 2838, the ``Fairness in Nursing Home Arbitration Act'' in 
September. If nursing homes are denied the ability to include 
pre-dispute arbitration agreements in admission contracts, many 
of America's largest skilled nursing care providers could be 
forced to cease operation in various areas throughout the 
nation.
    First, let me say, by way of introduction, that my family 
has been in the nursing home business for three generations. 
Today, we operate 41 facilities in four states, where we care 
for 5,000 residents and employ 6,000 caregivers. We are still a 
family owned enterprise committed to serving the local 
communities we call home.
    With this as a brief introduction, I want to relate to you 
how our experience has convinced me that without the ability to 
utilize arbitration as a form of dispute resolution, our 
residents and the industry as a whole will suffer.
    Let me begin by recounting for you how arbitration 
agreements came to be used in nursing home admission contracts. 
In the early 90's, several states became venues for extremely 
aggressive personal injury litigation against nursing homes. 
Particular states saw drastic increases in the number of 
lawsuits against nursing homes along with extreme jury verdicts 
reaching tens of millions of dollars. In the late 1990's and 
early part of this decade, one law firm won a series of jury 
verdicts in Florida ranging from $10 million to $20 million. In 
2001, the same law firm received a jury verdict of $78 million 
from an Arkansas jury. Increased litigation in these states had 
less to do with the quality of care provided than with the 
extremely emotionally charged cases and dominant legal and 
political standing of some extremely talented plaintiff's 
attorneys.
    The leaders of the skilled nursing care profession do not, 
and never will, condone the actions of those who do not strive 
for the highest standards of care. Bad actions should be 
punished. But during the 1990's, a feeding frenzy erupted that 
changed the nursing home business forever.
    In Alabama, Arkansas, Florida and Missouri, where our 
facilities are located, many insurance underwriters simply 
stopped offering liability insurance for nursing homes. In 
Florida, there have been periods of time when traditional 
liability insurance for nursing homes was not available at all, 
from any company, at any price. Throughout the industry, 
liability insurance became so expensive that many nursing home 
operators simply could not afford it.
    As insurance became either unavailable or unaffordable, 
nursing home operators began restructuring and reorganizing 
their businesses in an effort to keep the doors open and to 
continue serving the elderly and infirmed in their care. Some 
owners resorted to self-insurance programs that were little 
more than cash accounts set aside to pay litigation claims if 
they occurred. Other owners took steps to segment their 
business operations so that a multi-million dollar claim, while 
potentially fatal for the operation of one facility, did not 
result in a catastrophic impact on other facilities, displacing 
hundreds of residents, many of whom did not have a similar 
facility in close proximity to their homes or that of their 
families. These problems were faced by the entire nursing home 
industry, regardless of the ownership structure. Single 
facility family-owned operations as well as large corporate 
operators faced the same issues.
    A number of states took action to stem the rising cost of 
litigation by passing tort reform measures to curtail multi-
million dollar jury verdicts. But for states where tort reform 
has not been a political possibility, the use of arbitration 
agreements has been the only tool available to help nursing 
homes manage what had clearly become an impossible situation.
    The rising cost of insurance and litigation had a direct 
and lasting impact on the quality of care in nursing homes. 
Hundreds of millions of dollars that could have been spent on 
salaries for caregivers, modernization of aging buildings, 
technological improvements, and enhanced programming to provide 
a better quality of life for our patients was instead spent on 
incredibly high insurance programs or in paying the cost of 
record setting jury awards.
    Under these conditions, both nursing home operators and 
those for whom we care lacked the necessary protection 
insurance is supposed to offer. Insurance approaches that left 
nursing homes underinsured or with practically no insurance 
fostered an environment where one large claim was enough to 
force a nursing home to cease operating. That same environment 
also all but guaranteed that patients with legitimate claims 
that should be covered by insurance were left with little 
financial compensation, or even none at all.
    In the face of what was becoming a national crisis, some 
nursing homes opted to simply shut their doors in those states 
where they could no longer afford to operate. Others, like 
myself, who wanted to continue serving the residents of these 
communities, turned to the use of pre-dispute arbitration 
agreements as a levy against the rising tide of insurance and 
litigation costs. Since the institution of arbitration 
agreements, states that were experiencing the highest frequency 
of litigation and the greatest financial loses have seen an 
incredible turn around. According to AON's 2008 study, loss 
costs in Florida have decreased from $9,090 per bed in 1997 to 
$1,680 per bed in 2007. Although loss costs in Florida have 
dramatically decreased the frequency of lawsuits filed 
continues to prohibit insurance providers from completely re-
entering the market with affordable traditional liability 
coverage.
    Arbitration has provided a critical tool for nursing home 
operators resulting in better care for patients, because now 
the hundreds of millions of dollars being siphoned off by 
litigation can be redirected to improved patient care. 
Arbitration provided this financial benefit without forfeiting 
the protections guaranteed to our patients by law. As recently 
as this year the United States Supreme Court made it clear that 
entering into an arbitration agreement cannot alter any 
protections or remedies granted to consumers under the law. 
Arbitration agreements only change the venue in which disputes 
about these protections are heard.
    Arbitration has ended the days of jackpot justice lottery 
awards and replaced them with a system of fair judicial 
findings for all concerned. In our company's personal 
experience, we have never won (had a defense verdict) in an 
arbitration dispute. However, since the institution of 
arbitration resolution procedures, the costs of dispute 
resolution in the State of Florida have decreased drastically. 
This has resulted in more dollars being available and used for 
the care of residents. And while the frequency of claims in 
Florida has decreased by 44% since 2000, the cost of claims has 
decreased by 79%. This decrease does not mean patients with 
legitimate claims are being denied. It does, however, reflect 
the fact that most of the exorbitant jury awards have been 
eliminated; total costs of dispute resolution have been 
decreased; and fees to attorneys on both sides have gone down.
    Senator, at a time when the rising cost of healthcare is 
having a staggering affect on our economy, national policy 
makers should look closely at the impact of nursing home 
litigation on American taxpayers. Eighty-four percent of all 
nursing home beds are funded by Medicaid and Medicare. AON 
actuarial consultants estimate that 2.7% of all Medicaid 
payments to nursing homes are used to cover the cost of 
litigation. That means taxpayers are paying about $1.3 billion 
a year to cover the cost of nursing home litigation. AON also 
estimates that 52% of all litigation cost(s) are paid to 
lawyers. That means American taxpayers are devoting $675 
million a year to attorney's fees.
    I am tremendously concerned about what will happen if 
Congress turns back the clock to the 1990s and eliminates 
arbitration as a means of dispute resolution. My experience 
convinces me we must expect the worst. In states where there is 
still a litigious climate, the frequency of lawsuits will 
increase, just as they did then, and the jury verdicts in the 
tens of millions of dollars will again make headlines. As in 
the past, liability insurance will be either impossible to get 
or too expensive for nursing homes to afford. Hundreds of 
millions of dollars that should be spent on patient care will 
be siphoned off to quench a renewed feeding frenzy of lawsuits. 
And in the end, the American taxpayer will be faced with a bill 
that reaches into the billions as state and federal Medicaid 
budgets pick up their share of the tab.
    Senator Kyl, three generations of my family have dedicated 
their lives to the nursing home business. I have witnessed 
first-hand some of the most radical changes in the history of 
American healthcare. Some of these changes have made the 
quality of life better for millions of Americans, while other 
changes have threatened the quality of care that all Americans 
deserve. I hope you'll work with your colleagues on the 
Committee and in the Senate to preserve arbitration as a means 
of dispute resolution in nursing homes. While well-intentioned, 
passage of S. 2838 will reduce access to the kind of quality 
care our nation's elderly deserve.
    Thank you.
            Sincerely,
                                           J. Norman Estes,
                            President and CEO, NHS Management, LLC.

      VIII. Changes to Existing Law Made by the Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 2838, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                           UNITED STATES CODE

                          TITLE 9--ARBITRATION

Sec. 1. [``Maritime transactions'' and ``commerce'' defined; exceptions 
                    to operation of title] Definitions

    (a) As used in this chapter the term--
          (1) ``[Maritime] maritime transactions'', as herein 
        defined, means charter parties, bills of lading of 
        water carriers, agreements relating to wharfage, 
        supplies furnished vessels or repairs to vessels, 
        collisions, or any other matters in foreign commerce 
        which, if the subject of controversy, would be embraced 
        within admiralty [jurisdiction;] jurisdiction;
          (2) ``commerce'', as herein defined, means commerce 
        among the several States or with foreign nations, or in 
        any Territory of the United States or in the District 
        of Columbia, or between any such Territory and another, 
        or between any such Territory and any State or foreign 
        nation, or between the District of Columbia and any 
        State or Territory or foreign nation, but nothing 
        herein contained shall apply to contracts of employment 
        of seamen, railroad employees, or any other class of 
        workers engaged in foreign or interstate commerce[.];
          (3) ``long term care facility'' means--
                  (A) any skilled nursing facility, as defined 
                in 1819(a) of the Social Security Act;
                  (B) any nursing facility as defined in 
                1919(a) of the Social Security Act; or
                  (C) a public facility, proprietary facility, 
                or facility of a private nonprofit corporation 
                that--
                          (i) makes available to adult 
                        residents supportive services to assist 
                        the residents in carrying out 
                        activities such as bathing, dressing, 
                        eating, getting in and out of bed or 
                        chairs, walking, going outdoors, using 
                        the toilet, obtaining or taking 
                        medication, and which may make 
                        available to residents home health care 
                        services, such as nursing and therapy; 
                        and
                          (ii) provides a dwelling place for 
                        residents in order to deliver such 
                        supportive services referred to in 
                        clause (i), each of which may contain a 
                        full kitchen and bathroom, and which 
                        includes common rooms and other 
                        facilities appropriate for the 
                        provision of supportive services to the 
                        residents of the facility; and
          (4) ``pre-dispute arbitration agreement'' means any 
        agreement to arbitrate disputes that had not yet arisen 
        at the time of the making of the agreement.
    (b) The definition of ``long-term care facility'' in 
subsection (a)(3) shall not apply to any facility or portion of 
facility that--
          (1) does not provide the services described in 
        subsection (a)(3)(C)(i); or
          (2) has as its primary purpose, to educate or to 
        treat substance abuse problems.

SEC. 2. VALIDITY, IRREVOCABILITY, AND ENFORCEMENT OF AGREEMENTS TO 
                    ARBITRATE

SEC. 2. VALIDITY AND ENFORCEABILITY

    [A written](a) A Written provision in any maritime 
transaction or a contract evidencing a transaction involving 
commerce to settle by arbitration a controversy thereafter 
arising out of such contract or transaction, or the refusal to 
perform the whole or any part thereof, or an agreement in 
writing to submit to arbitration an existing controversy 
arising out of such a contract, transaction, or refusal, shall 
be valid, irrevocable, and enforceable[, save upon such grounds 
as exist at law or in equity for the revocation of any 
contract] to the same extent as contracts generally, except as 
otherwise provided in this title.
    (b) A pre-dispute arbitration agreement between a long-term 
care facility and a resident of a long-term care facility (or 
anyone acting on behalf of such a resident, including a person 
with financial responsibility for that resident) shall not be 
valid or specifically enforceable.
    (c) This section shall apply to any pre-dispute arbitration 
agreement between a long-term care facility and a resident (or 
anyone acting on behalf of such a resident), and shall apply to 
a pre-dispute arbitration agreement entered into either at any 
time during the admission process or at any time thereafter.
    (d) A determination as to whether this chapter applies to 
an arbitration agreement described in subsection (b) shall be 
determined by Federal law. Except as otherwise provided in this 
chapter, the validity or enforceability of such an agreement to 
arbitrate shall be determined by the court, rather than the 
arbitrator, irrespective of whether the party resisting the 
arbitration challenges the arbitration agreement specifically 
or in conjunction with other terms of the contract containing 
such agreement.

                                  
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