Category: Law and Inequality

The Care/Profit Tradeoff in Nursing Homes

We’re often told that inequality helps keep the US economy efficient. Cut regulation and give high rewards to those at the top, and they’ll work hard to cut costs and compete on quality, providing better and cheaper goods and services for all. Private equity firms like Carlyle Group might be considered the apotheosis of such a market-based approach, taking over companies and forcing them to meet market imperatives.

Here’s a fascinating NYT study of their influence on the nursing home industry, which “compared investor-owned homes against national averages in multiple categories, including complaints received by regulators, health and safety violations cited by regulators, fines levied, [and] the performance of homes as reported in a national database known as the Minimum Data Set Repository.” The findings describe an extraordinary combination of business efficiency and deflection of legal responsibility:

The Times analysis shows that . . . managers at many . . . nursing homes acquired by large private investors have cut expenses and staff, sometimes below minimum legal requirements. Regulators say residents at these homes have suffered. At facilities owned by private investment firms, residents on average have fared more poorly than occupants of other homes in common problems like depression, loss of mobility and loss of ability to dress and bathe themselves, according to data collected by the Centers for Medicare and Medicaid Services. The typical nursing home acquired by a large investment company before 2006 scored worse than national rates in 12 of 14 indicators that regulators use to track ailments of long-term residents.

The law plays an important role in preventing accountability here; “private investment companies have made it very difficult for plaintiffs to succeed in court and for regulators to levy chainwide fines by creating complex corporate structures that obscure who controls their nursing homes.” So perhaps the key “innovation” here was the decision to aggressively reduce care and skillfully deploy legal strategies to prevent any liability for injuries that reduced care caused. It certainly worked well for investors; “A prominent nursing home industry analyst, Steve Monroe, estimates that [one investment group’s] gains from [its sale of a nursing home chain] were more than $500 million in just four years.”

I have to confess that I’ve always wondered what business practices could “create the value” that’s resulted in such extraordinary gains at the top of the income scale. The Times has done us a great service by putting a human face on some of them. . . and on the legal strategies that make them possible.

Questionable Advice On Net Neutrality

The DOJ Antitrust Division’s just-released public comment on net neutrality (available here) has been getting a lot of press. Unfortunately, it appears that the shoddy analysis that Jack Goldsmith saw in the DOJ’s torture memos may also be infecting its approach to net neutrality. I just want to raise three worries apparent on a quick read of the document:

1) Pollyanna Prevails: The DOJ document presumes that a laissez-faire approach has done wonders for US broadband access. But just as visitors from Japan and Europe find our cell phones crippled, so too our internet access is lagging. As the WaPo notes, “In sharp contrast to the Bush administration over the same time period, regulators [in Japan] compelled big phone companies to open up wires to upstart Internet providers”–and saw extraordinary results. But (again, on a quick read), I did not see a single reference in the DOJ document on how other countries handle the policy issues the FCC is facing, except for the Canadian Telus dispute (which it called “irrelevant”).

2) Shunning the Scholars: From a quick text-search of the document’s footnotes, it appears that DOJ fails to reckon with the work of a single one of the following prominent pro-net-neutrality scholars: van Schewick, Economides, Frischmann & Waller, Crawford, or Wu.

van Schewick’s work provides an interesting contrast to many of the citations in the DOJ filing:

Barbara van Schewick [argues that there is a] severe threat of discrimination without network neutrality regulation, and that discrimination will reduce application-level innovation. van Schewick’s work is not funded by any of the special interests involved in this issue — nor is it sponsored by the “independent” think tanks that are funded by the special interests involved in this issue.

Even more surprisingly, the DOJ fails to cite the leading legal academic voice against net neutrality, Christopher Yoo.

3) Errant Economism: Economic analysis has its place, and DOJ does cite several economists who claim that network neutrality rules would “skew investment, delay innovation, and diminish consumer welfare.” Even if I were to cede that very questionable claim, is that the end of the issue? Economic analysis is one tool among many for evaluating the normative desirability of a policy proposal. Would the DOJ think FCC Commissioner Deborah Taylor Tate out of line for being concerned about sex and violence as she helps craft these rules? A narrow focus on economics does not help us achieve what the DOJ itself admits is the clear “public policy objective here. . . .: a thriving and dynamic Internet capable of meeting the demands of consumers for fast and reliable access to a rich variety of content and applications.”

Flying the Stratified Skies

edna.jpgTravel has always served to remind us of the divisions our “classless society” tries so hard to downplay. Sam Walton may have driven an old truck, but you’d be hard-pressed to find most top executives or trust-funders flying in less-than-first-class digs. As the song in Chitty-Chitty Bang-Bang put it,

O the posh posh traveling life, the traveling life for me

Pardon the dust of the upper crust – fetch us a cup of tea

Port out, starboard home, posh with a capital P. . .

Admittedly, for those of us crushed into coach, there was always a happy flipside to the narrative: the profligates up front were paying so much more for their seats, effectively subsidizing the rest of us.

But that subsidy effect has been on the wane in recent years. And now wealthy fliers have found a new way to effectively assure that the rest of us are subsidizing them:

Corporate jets pay a fraction of the taxes and fees that commercial airliners do. The F.A.A. estimates that private planes, which include both corporate jets and weekend fliers, account for 16 percent of the air traffic control system’s overhead but contribute only 3 percent of the fees earmarked to run the system.

***

The Air Transport Association has . . . created a Web-based ad campaign featuring a fictional traveler, Edna, complaining about the fee disparity while the computer screen displays waves of corporate jets filling the skies before and after sporting events like the Kentucky Derby and the Masters golf tournament.

It’s enough to wilt the mint in your julep. As the campy YouTube ad sloganeers, travelers like “wearing big wigs, not subsidizing them!” Edna (pictured above) wonders “Why should the rest of us pay ten times more using the same services?”

Fortunately, the FAA has heard her pain, and is planning on “sharply increasing the fuel tax for private jets and also hitting corporate fliers with extra charges to land at any of the country’s 30 most congested airports.”

The Inequality/Insecurity-Industrial Complex

photo_01.jpgIf you want to see a film where lawyers are unabashedly portrayed as “the heros,” the free-wheeling documentary Manda Bala would be a great choice. Brazilian AG Claudio Fonteles and other attorneys pursue a corrupt politician for years. I won’t spoil the ending, but rather focus on how the film’s other main theme–the kidnapping crisis in Sao Paulo–challenges the idea that lawyers drag down the economy by redistributing (rather than creating) wealth.

Sao Paulo’s population of 20 million is a study in extremes. Millions lack basic infrastructure, but there is more money concentrated there than the rest of Latin America combined. Recalling Lang’s Metropolis, the upper class lives in high-rises and country houses, maintaining a massive fleet of helicopters to avoid the favelas and traffic below. The helicopters aren’t merely a convenience: an epidemic of kidnapping has made driving (even in bulletproof cars) extremely dangerous. The movie draws an uncomfortable parallel between the politicians who siphon off state funds designated for the poor northern provinces, and the kidnappers who demand ransom from wealthy urbanites: “One steals with the pen, the other with the gun.”

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The World as the Text of the Thoughts of a Programmer

robot4.jpgAdam Kolber has posted on a New York Times article by John Tierney that “discusses the possibility that our world was created as a hobby or as an experiment by members of some more technologically advanced civilization.” The piece is based on “a discussion with the-always-insightful Nick Bostrom, Director of the Future of Humanity Institute at Oxford University:”

Dr. Bostrom assumes that technological advances could produce a computer with more processing power than all the brains in the world, and that advanced humans, or “posthumans,” could run “ancestor simulations” of their evolutionary history by creating virtual worlds inhabited by virtual people with fully developed virtual nervous systems.

Tierney estimates “that the odds are better than 20 percent, maybe better than even” that we are living in a simulation, but consoles us that “just because your neural circuits are made of silicon (or whatever posthumans would use in their computers) instead of carbon doesn’t mean your feelings are any less real.”

Query: What exact meaning of “real” is being invoked here–authentic? genuine? important? I think the “real” agenda of people like Bostrom is to get us to understand ourselves as a pattern of thoughts and reactions to the world–a kind of behaviorism that I critique in this post.

The speculation about a “prime designer” reminds me of the intelligent design movement’s effort to fuse science and religion. Tierney’s piece reveals to me a lot more about the human need for the sacred than it gives me a sense of whether we’re all just butterflies dreaming that we’re persons. (The estimated 20% chance is a nice example of quantificationism–wouldn’t our estimate of the chance of being a simulation itself be a a part of the simulation, and thus impossible to verify?).

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Objective Harms from Inequality

stretchlimo.jpgMy last three posts (on doctor rankings, SUV’s, and family-obligation discrimination) all have a common thread. They involve what economist Robert Frank calls “positional arms races”–efforts to attain a ranking or relative position whose value depends on how well others are doing.

Driving around in a small car isn’t so scary if everyone else has a small car–but if you’re in litte sedan and you’re surrounded by Escalades, you’re in trouble if there’s a crash (to put it precisely, at least four times more likely to die than if hit by a small car). Similarly, the workplace can often be a rat race with success judged by hours worked–and not necessarily quality of work, a far more difficult thing to measure. Finally, the doctor rankings are a purely positional good: no matter how good the bottom half gets, as long as the top half is better, it will always be known as the bottom half. Similarly, there are only 20 “Top 20″ law schools on any given ranking system; no matter how good the teaching & research gets among schools generally, there is an absolute limit on top spaces.

The mere fact of a positional arms race says nothing about the desirability of a given state of affairs. A well-designed doctor-ranking system might well lead to pay-for-performance rather than pay-for-procedure. Similarly, most law schools rely on a grading “curve” as a spur to excellence–even if it causes some anxiety.

But Robert Frank identifies a number of “arms races” that have hidden costs–both to those participating in them and those left behind.

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Is Inequality Bad in Itself?

Incometo2004.jpg

As the AMT debate heats up, there are a lot of efforts to justify the trend in income distribution represented in the chart above (which appears to only be getting more pronounced). But few economists have chronicled the rise of inequality in America as insightfully as Robert Frank.

Twenty years ago, Frank’s groundbreaking Choosing the Right Pond focused on the importance of status in everyday life, eloquently documenting the hidden injuries of class. Ten years later, in The Winner Take All Society, Frank questioned the myths of merit so often used to justify high levels of inequality. He showed how technology could exponentially increase returns to “superstars” who were marginally (or perhaps not at all) better performers than “also-rans.” Frank’s Luxury Fever chronicled the disastrous effects of “spending cascades” unleashed by the new inequality: as the near-rich strived to emulate the ever-wealthier rich, so the middle class strived to emulate the near-rich, leading to extraordinary levels of indebtedness. Each book developed the theme of “positional competition“–the wasteful race for goods that are valued to the extent others are denied them.

Between these books, Frank has also published fascinating works on moral psychology (such as Passions Within Reason and What Price the Moral High Ground), and has formalized his insights in leading economics journals. In the tradition of Albert O. Hirschman and Jon Elster, Frank is one of few leading social scientists capable of enriching economic thought with philosophical, psychological, and sociological insight.

But Frank’s work has also attracted an array of critics. . . .

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Are Survivors’ Costs a Pro-Life Issue?

The conservative Manhattan Institute recently commissioned a study of a gap in life-expectancy gains over the past 20 years. The data that inspired the study are startling:

While U.S. life expectancy increased by 2.33 years from 1991 to 2004, some jurisdictions — the District of Columbia (5.7 years), New York (4.3 years), California (3.4 years) and New Jersey (3.3 years) — led the way, while others, such as Oklahoma (0.3 years), Tennessee (0.8 years) and Utah (0.9 years), trailed the national average by significant margins.

To make a long story short, the researcher found that found that “longevity increased the most in those states where access to newer drugs . . . in Medicaid and Medicare programs has increased the most.”

Unfortunately, budgetary rules often make the federal government concentrate more on the costs of such interventions than their benefits. For example, the CBO counts “increased costs to the Medicare program for extending the life of its beneficiaries” as “survivors’ costs.” Tim Westmoreland’s fascinating article on the topic (95 Georgetown L.J. 1555, June 2007) calls this “euthanasia by budget:”

In describing why its model included costs but no savings from new access to pharmaceuticals, the Congressional Budget Office said, inter alia, “ [T]o the extent that a drug benefit helps people live longer, they may consume more health care over their remaining lifetime than they would have without the benefit.” In other words, it is still cheaper for Medicare beneficiaries to die.

One wonders if the same reasoning was behind a Texas law that permitted hospital authorities to cut off life support to a conscious woman.

I admit that Daniel Callahan has eloquently questioned the “research imperative,” and perhaps his reasoning could be extended to health care more generally. But it strikes me that in our accounting the costs and benefits of health care in this country, budgetary savings arising out of early death ought to be suspect.

RIAA’s Turn to Be a Defendant

Matthew Sag has convincingly argued that RIAA’s litigation war against downloaders is rational for the industry: it’s basically self-financing, as just about every defendant is too terrified of massive statutory damages to put up a fight. But the record industry’s declining fortunes may make its court victories Pyrrhic.

Moreover, a scorched earth litigation strategy against infringers is getting less viable as a few defendants fight back. For example, one litigant has found a creative way of subjecting RIAA’s tactics to public scrutiny:

Former RIAA defendant Tanya Andersen is now suing the major record labels and the RIAA for negligent and illegal investigation and prosecution. In a thirteen count civil suit filed in Oregon District Court, she alleges that record labels didn’t use properly licensed investigators and violated her privacy.

I’m still waiting for someone to bring the antitrust lawsuit that was forestalled by Bertelsmann’s purchase of Napster a few years ago. As Napster-slaying Judge Patel said of the RIAA’s distribution strategy then, “These ventures look bad, smell bad and sound bad” from an antitrust perspective.

Of course, given the lassitude of federal authorities, the antitrust case will be hard to make. But I look forward to more privacy challenges. As Sonia Katyal has argued,

recent developments in copyright law. . . have invited intellectual property owners to create extrajudicial systems of monitoring and enforcement that detect, deter, and control acts of consumer infringement. As a result, . . . intellectual property rights have been fundamentally altered—from a defensive shield into an offensively oriented type of weapon that can be used by intellectual property creators to record the activities of their consumers, and also to enforce particular standards of use and expression. . . .

If agencies fail to police these tactics, perhaps only individuals can fight for themselves. But as Bruce Scheier asks, why doesn’t the US have a privacy commissioner?

Hat Tip: BoingBoing.

6

The Right to Food

hunger.jpg[Another dispatch from Rome.]

Yesterday, we visited the UN’s Food and Agricultural Organization (FAO), based near the Circus Maximus. The FAO’s legal staff was gracious enough to give Temple’s students and faculty a presentation on their work, along with tips on how to get into international legal work.

The presentation and idea I found most interesting was the FAO’s advocacy on behalf of the (so-called) human right to food. The FAO (and the considerable scholarship on this topic) derive the right largely from the International Covenant on Economic, Social and Cultural Rights (ICESCR), particularly Article 11:

The States Parties to the present Covenant recognize the right of everyone to an adequate standard of living for himself and his family, including adequate food, clothing and housing, and to the continuous improvement of living conditions. The States Parties will take appropriate steps to ensure the realization of this right, recognizing to this effect the essential importance of international co-operation based on free consent . . .

2. The States Parties to the present Covenant, recognizing the fundamental right of everyone to be free from hunger, shall take, individually and through international co-operation, the measures, including specific programmes, which are needed:

In response to a student question, the FAO’s lawyers acknowledged that this right is not presently internationally justiciable. Instead, in the words of the FAO’s strategic plan, advocates for the right should “support initial national implementation of the right to food and the Guidelines.”

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