in the Pittsburgh Post Gazette.

My Op-Ed on Health Reform and "Blue Dog" Democrat Congressman Altmire's political posturing in is today's Pittsburgh Post Gazette.

GM has announced that it will reinstate 660 of 1100 dealerships that were slated to close.  Last month, Congress passed legislation giving terminated dealers the "right" to appeal their termination through binding arbitration to be overseen by the American Arbitration Association.  Although, as discussed in my book, I'm all in favor of arbitration and I am an arbitrator for the AAA, the special treatment afforded by this law strikes me as both undermining the credibility of arbitration as a contract-based means of resolving disputes agreed upon in advance by the parties and confirming Tip O'Neill's famous admonition that "all politics is local."  The diffuse national interest in restoring the competitiveness of the auto industry is simply no match for the influence that can be asserted by local car dealerships over their congressional representatives.

Although, on the surface, there seems nothing wrong with a business a chance to go on, consider the implications of granting a similar right to all business or to all terminated workers.  The law does not ask the arbitrators to review the propriety of the termination under the contracts entered by the dealers with the automakers, or to decide based upon any discernible principle of law, but instead to decide as follows:

The arbitrator shall balance the economic interest of the covered dealership, the economic interest of the covered manufacturer, and the economic interest of the public at large and shall decide, based on that balancing, whether or not the covered dealership should be added to the dealer network of the covered manufacturer.

The factors considered by the arbitrator shall include (1) the covered dealership’s profitability in 2006, 2007, 2008, and 2009, (2) the covered manufacturer’s overall business plan, (3) the covered dealership’s current economic viability, (4) the covered dealership’s satisfaction of the performance objectives established pursuant to the applicable franchise agreement, (5) the demographic and geographic characteristics of the covered dealership’s market territory, (6) the covered dealership’s performance in relation to the criteria used by the covered manufacturer to terminate, not renew, not assume or not assign the covered dealership’s franchise agreement, and (7) the length of experience of the covered dealership. The arbitrator shall issue a written determination no later than 7 business days after the arbitrator determines that case has been fully submitted. At a minimum, the written determination shall include (1) a description of the covered dealership, (2) a clear statement indicating whether the franchise agreement at issue is to be renewed, continued, assigned or assumed by the covered manufacturer, (3) the key facts relied upon by the arbitrator in making the determination, and (4) an explanation of how the balance of economic interests supports the arbitrator’s determination.

This supposed "balancing" test is pure fantasy:  is the arbitrator supposed to decide whether the close is more important to the dealer, the maker, or the public?  This is like asking whether $1000 is more important to a laid-off worker, a multi-national company, or the public at large.

Perhaps not surprisingly, GM has decided against playing this game.  According to the Washington Times

" GM said it would not have enough time to negotiate with all 1,100 dealerships that appealed the automaker's decision to close them within a four-month window imposed by the federal government.  "By doing this we save a lot of time, energy and dollars," said Jim Bunnell, GM general manager of network support, saying the company wished to avoid a "very large arbitration process."

Don't get me wrong.  Many local dealers have made significant contributions to their local communities and deserve a fair opportunity to continuing doing so.  Special treatment with a law of dubious constitutionality, though, says far more about political influence than justice,  sets a bad precedent, and does nothing to advance arbitration as a fair and cost effective alternative to wasteful litigation.  I suspect that GM has, thus far, opted against challenging the constitutionality of the law in favor of giving in, because it owns political bailout might make is less than ideal challenger.

In his blog, The Frontal Cortex, Jonal Lehrer (author of How We Decide and Proust Was a Neuroscientist) describes the "ultimatum game," which is often used in teaching Negotiations to demonstrate how important a sense of "fairness" may be to reaching an agreement.  The game has two players.  The first player is given $10 and told that he or she must offer part of it to the second player.  The first player can offer any amount, if the second player accepts the offer, both players keep their share, but if the second player rejects the offer, then both players get nothing.  Almost invariably, if the first player offers much less than $5, the second player will reject the offer--even though rejecting the offer makes the second player worse off.  (A purely rational player would accept any offer above zero, because regardless of how much player one keeps, a non-zero propeal would be a gain).    This phenomenon has been shown in a variety of contexts.  For example, given a choice of a job that will pay $80,000 in a company in which everyone else makes $80,000 or less, and a job paying $90,000 in a company in which everyone else is paid $120,000 or more, most people would prefer the first job.

Lehrer describes additional research (using brain scanners) that shows concerns over fairness or equality may not be purely selfish--that people sometimes prefer someone else be given a gift to receiving a gift themself, if it will balance out a unfair starting point.

In a nutshell, when someone says "its the principle, not the money," they may actually mean it, and it would be a mistake for a mediator or negotiator to dismiss the such non-monetary motives.  In litigation, though, the issue is complicated by other psychological tendencies, such as the tendency to underestimate the time and cost of the lawsuit and overestimate the likelihood of success.  Further, even successful litigants often come away from a lawsuit feeling beaten down by the process and without the expected satisfaction derived from vindication.  Consequently, and perhaps counter-intuitively, negotiation or mediation of a settlement may require putting "fairness" aside, because the price of fairness is simply too high.  While I don't think a negotiator or mediator can, or should, discredit or diminish the importance of fairness to the parties, I do think he or she can make a significant contribution by helping them  more accurately assess both the cost of pursuing "fairness" and the potential for disappointment.

President Obama has sent a letter to Congressional Leadership identifying Republican proposals that he may include in a final reform package later this week, including increased funding pilot tort reform projects that may include health courts.  It's worth recalling that Obama (along with then Senator Clinton) sponsored a bill (MEDIC) in 2006 that sought funding for such programs.

This is nice example for negotiation 101--it never hurts to package something you are willing to do anyway as a "concession."

In truth, this seems all about PR, reiterating Republican obstinancy in opposing any meaningful reform, and attempting to provide some cover for supporters.  The Republican objective, as made clear in the health care summit, is to do nothing start over.  Adding "republican" ideas to the reform package doesn't really change anything. Although tort reform is necessary to eliminate waste, it is not (as posited by the Republican) a substitute for comprehensive reform.

The text of the President's letter follows:

March 2, 2010

Dear Speaker Pelosi, Senator Reid, Senator McConnell, and Representative Boehner:

Thank you again for the time, energy, and preparation you invested in last Thursday’s bipartisan meeting on health insurance reform. I have always believed that our legislative process works best when both sides can discuss our differences and common goals openly and honestly, and I’m very pleased that our meeting at Blair House offered the American people and their elected representatives a rare opportunity to explore different health reform proposals in extraordinary depth.

The meeting was a good opportunity to move past the usual rhetoric and sound-bites that have come to characterize this debate and identify areas on which we agree and disagree. And one point on which everyone expressed agreement was that the cost of health care is a large and growing problem that, left untended, threatens families, businesses and the solvency of our government itself.

I also left convinced that the Republican and Democratic approaches to health care have more in common than most people think.

For example, we agree on the need to reform our insurance markets. We agree on the idea of allowing small businesses and individuals who lack insurance to join together to increase their purchasing power so they can enjoy greater choices and lower prices. And we agree on the dire need to wring out waste, fraud and abuse and get control of skyrocketing health care costs.

But there were also important areas of disagreement. There was a fundamental disagreement about what role the oversight of the health insurance industry should play in reform.I believe we must insist on some common-sense rules of the road to hold insurance
companies accountable for the decisions they make to raise premiums and deny coverage. I don’t believe we can afford to leave life-and-death decisions about health care for America’s families to the discretion of insurance company executives alone.

No matter how we move forward, there are at least four policy priorities identified by Republican Members at the meeting that I am exploring. I said throughout this process that I’d continue to draw on the best ideas from both parties, and I’m open to these proposals in that spirit:

1. Although the proposal I released last week included a comprehensive set of initiatives to combat fraud, waste, and abuse, Senator Coburn had an interesting suggestion that we engage medical professionals to conduct random undercover investigations of health care providers that receive reimbursements from Medicare, Medicaid, and other Federal programs.
2. My proposal also included a provision from the Senate health reform bill that authorizes funding to states for demonstrations of alternatives to resolving medical malpractice disputes, including health courts. Last Thursday, we discussed the provision in the bills cosponsored by Senators Coburn and Burr and Representatives Ryan and Nunes (S. 1099) that provides a similar program of grants to states for demonstration projects. Senator Enzi offered a similar proposal in a health insurance reform bill he sponsored in the last Congress. As we discussed, my Administration is already moving forward in funding demonstration projects through the Department of Health and Human Services, and Secretary Sebelius will be awarding $23 million for these grants in the near future. However, in order to advance our shared interest in incentivizing states to explore what works in this arena, I am open to including an appropriation of $50 million in my proposal for additional grants. Currently there is only an authorization, which does not guarantee that the grants will be funded.
3. At the meeting, Senator Grassley raised a concern, shared by many Democrats, that Medicaid reimbursements to doctors are inadequate in many states, and that if Medicaid is expanded to cover more people, we should consider increasing doctor reimbursement. I’m open to exploring ways to address this issue in a fiscally responsible manner.
4. Senator Barrasso raised a suggestion that we expand Health Savings Accounts (HSAs). I know many Republicans believe that HSAs, when used in conjunction with high-deductible health plans, are a good vehicle to encourage more cost-consciousness in consumers’ use of health care services. I believe that high-deductible health plans could be offered in the exchange under my proposal, and I’m open to including language to ensure that is clear. This could help to encourage more people to take advantage of HSAs.

There are provisions that were added to the legislation that shouldn’t have been. That’s why my proposal does not include the Medicare Advantage provision, mentioned by Senator McCain at the meeting, which provided transitional extra benefits for Florida and other states. My proposal eliminates those payments, gradually reducing Medicare Advantage payments across the country relative to fee-for service Medicare in an equitable fashion (page 8).  My proposal rewards high-quality and high-performing plans.

In addition, my proposal eliminates the Nebraska FMAP provision, replacing it with additional federal financing to all states for the expansion of Medicaid.

Admittedly, there are areas on which Republicans and Democrats don’t agree. While we all believe that reform must be built around our existing private health insurance system, I believe that we must hold the insurance industry to clear rules, so they can’t arbitrarily raise rates or reduce or eliminate coverage. That must be a part of any serious reform to make it work for the many Americans who have insurance coverage today, as well as those who don’t.

I also believe that piecemeal reform is not the best way to effectively reduce premiums, end the exclusion of people with pre-existing conditions or offer Americans the security of knowing that they will never lose coverage, even if they lose or change jobs.

My ideas have been informed by discussions with Republicans and Democrats, doctors and nurses, health care experts, and everyday Americans – not just last Thursday, but over the course of a yearlong dialogue. Both parties agree that the health care status quo is unsustainable. And both should agree that it’s just not an option to walk away from the millions of American families and business owners counting on reform.

After decades of trying, we’re closer than we’ve ever been to making health insurance reform a reality. I look forward to working with you to complete what would be a truly historic achievement.
Sincerely,

In article by Mike Cronin on independent hospitals in Western PA.

I always find astonishing our ability to see only what we want to see.  In a 1954 study by Albert Hastorf & Hadley Cantril, students from Princeton and Dartmouth were asked to review a film of a football game between the two schools and to count the number of penalties by each side. The Princeton students found that the Dartmouth team committed twice as many flagrant penalties and three times as many mild penalties as the Princeton team. On the other hand, the Dartmouth students found that the two teams committed an approximately equal number of penalties. The study concluded that it was as though the two sets of students "saw a different game."

Commentary on yesterday's healthcare summit follows this predictable, but still remarkable pattern.  Take a look at any blog discussion of the summit, and you will see commentary that appears to review entirely different events.  Online comments on the WSJ's unsurprisingly negative op-ed is one example.   The LA Times comments start from the opposite side I don't doubt the sincerity with which democrats and republicans view their side as the "winner."

Regardless of positions on healthcare refore, I have to admit that I find it hard to see how President Obama's performance and command of the event could be considered anything other than extraordinary; he would certainly make an exceptional mediator.   In the face of aggressive and emotional criticism, he responds calmly and (for the most part) in a manner that invites deescalation.  He acknowledges the validity of diverse perspectives and doesn't reject the view of opponents simply because of their source.   (e.g., He left John McCain speechless when he agreed that the healthcare reform should not include special deals for different states).  He also recognizes that sometimes there is simply too wide a gap between the parties.

Here is a link to an article I wrote for StartupNation on planning for and managing business disputes.  StartupNation provides educational materials and resources for entrepreneurs.  Next month I will be doing a podcast and article on tips for negotiation for the site.

The Administration has posted President Obama's proposal, which is based on the Senate Bill but excludes a public option, here. More later...

In addition to the Nokia v. Apple/Apple v. Nokia patent lawsuits, patent suits in court or in the USITC have also been filed by:

• Motorola v. RIM (i.e. Blackberry)  (Although Motorola recently lost a similar case in the UK)
• Kodak v. RIM and Apple
• Kokak v. LG and Samsung (This started last January and settled a few weeks ago).

These costly pissing contests will of course make promote innovation and make us all better off.  Part of me wishes that the USITC finds in favor of all of the complainants in these cases, which would enable them to ban imports of infringing smartphones into the US.  (If only Samsung and LG had not settled, the perhaps the USITC could simply ban all smarphone made outside the US--i.e., all of them).