A new regulation from the Obama administrating is taking on the freedom to contract for nursing homes, and the operators are not happy. The dispute is over whether or not these facilities can include clauses in their contracts requiring that residents resolve disputes via private arbitrators as opposed to government courts. An arbitration service functions similarly to a court, but with the principal difference being that it is run by the private sector. Regulators claim that seniors are being taken advantage of, since such clauses are generally in the fine print. As a result, bureaucrats say, seniors should have the right to sue in a government court. Nursing home operators dispute this, and claim that the government is exceeding its authority in specifying what can and cannot be included in a contract.

Both sides have a point, but we should always be skeptical of government intervention in private markets.

Let me begin by saying that I have great sympathy for the residents of these facilities, and I don’t doubt that many of them are mistreated, abused, and taken advantage of. According to The Hill, the fine print of nursing home contracts regularly contains clauses forcing residents to use private dispute resolution firms in the case of a grievance, rather than appealing to government courts. It’s likely that many residents don’t know or understand what they are agreeing to, and in that sense, I agree that there is a problem that needs to be addressed.

However, it’s important to avoid falling into the trap of lumping all arbitration firms into the category of hucksters trying to separate old people from their money. Indeed, private dispute resolution has a long and respectable history in this country, and provides a valuable alternative to the government’s monopoly on justice. A contract works both ways, and it may be the case that some residents want to use arbitration firms rather than relying on the state. Disallowing these clauses in the contract could have the side effect of forcing people into arrangements they are not comfortable with, especially when private arbitrators have so many advantages over the courts.

Anyone who has dealt with the legal system knows that bringing suit can be a tremendously lengthy and expensive process. The cost of hiring an attorney alone can be ruinous. Even if you can afford it, you may have to wait months or years to have your case heard and to receive a verdict. The residents of nursing homes do not often have the luxury of time required by the courts.

Private arbitration, on the other hand, can be cheaper and faster.

Although it is not well known, private arbitration is responsible for resolving three times as many disputes as public courts. In addition to the advantage of not clogging up the public system, this method of dispute resolution is more flexible in that it is not restricted to statutory law. Indeed, where the written law fails to account for difficulties that arise in various areas, arbitration can resolve problems in ways that the courts never could. International disputes, for example, often rely on arbitration, due to the mutual incompatibility of various countries’ legal systems. Historically, the merchant class developed their own internal method of dispute resolution, being unable to rely on the state to handle the intricacies of their trade. A modern example involves credit card companies who have agreed to resolve disputes with banks outside of the public legal system, a system that has proved remarkably nimble and efficient.

The American Arbitration Association contains a network of hundreds of independent mediators and arbitrators, and the allied International Centre for Dispute Resolution operates in over 80 countries. One of the main advantages of using such a service is the array of options that customers are given. With a public court, the individuals has little to no control over choosing the judge who will ultimately decide the case. With private dispute resolution, both parties are able to find a mutually acceptable arbitrator to minimize the presence of bias or prejudice. And when both parties agree on how a dispute is to be resolved, they are each more likely to accept the ultimate ruling and view it as legitimate.

With all this in mind, I am reluctant to view the Obama administration’s ruling on nursing homes as being legitimately in the interest of residents. It’s undeniable that the rights of the elderly, who are often the targets of con men and other crooks, need to be protected, and that they should have recourse to pursue justice when they are wronged. But the freedom to contract is as important for residents as it is for business owners. Congress should have no authority to dictate the terms of these arrangements, even when nursing homes are accepting federal dollars in the form of Medicare. Additionally, I can’t help but feel that part of the motivation for this rule is the threat of competition to government courts. Private arbitration has been a steadily growing business for some years now, and there may well come a point where people realize they need not rely so heavily on the government to ensure that justice is carried out. Regulating whether or not businesses can contract to use arbitration could be the first step in reclaiming the dispute resolution from the private sector. (For more from the author of “This New Regulation Could Deprive the Elderly of Access to Private Courts” please click HERE)

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