Minnesota Attorney General's Assault on American Health

When Americans see their credit lines tightened and health care bills rising, they typically point fingers at Washington, where recent congressional legislation like Dodd-Frank and Obamacare generates huge new costs for providers. But often, there are government culprits outside the Beltway, as financially motivated trial lawyers and self-promoting state attorneys general exploit our dysfunctional legal system to regulate national industries from afar.

Consider Minnesota Attorney General Lori Swanson. First elected on the Democratic-Farmer-Labor Party ticket in 2006, Swanson has launched a veritable crusade against the credit card and health care industries.

In July 2009, Swanson filed a lawsuit against the National Arbitration Forum that turned upside-down the national practice of consumer debt arbitration. The NAF had been far and away the United States’ largest consumer debt arbitrator, handling more than 200,000 cases annually.

Such arbitration is the lowest-cost means of resolving debt disputes, and studies show consumers are generally more likely to prevail than in court, with faster case resolution and statistically indistinguishable awards. Small wonder that 82 percent of surveyed consumers say they prefer arbitration in resolving most disputes with corporations.

Of course, arbitration also cuts lawyers’ fees -- which is why the trial bar fights it so vigorously. And in Swanson, the litigation industry found a champion. In Swanson’s view, the fact that a diversified Wall Street private equity fund, Accretive LLC, held an ownership stake in the NAF meant that it couldn’t fairly handle debt disputes.

Rather than defend its low-margin consumer debt arbitration business against Swanson’s assault, the NAF decided to cease handling consumer arbitration cases altogether -- hurting not only Minnesotans but residents of the other 49 states as well.

Swanson’s actions effectively overrode the judgment of Congress, which strongly prefers private arbitration agreements through the Federal Arbitration Act, as the Supreme Court recognized last year in its decision in AT&T Mobility v. Concepcion. Moreover, by gutting efficient consumer debt resolution nationwide, Swanson’s assault on the NAF necessarily led to tighter credit markets -- thus working at cross-purposes to the monumental efforts undertaken by Congress and the Federal Reserve to boost consumer spending and loosen credit in the wake of the 2008 financial crisis.

In the last year, Swanson’s show trial against Wall Street has morphed into something from the Theatre of the Absurd. This time, her target is Accretive LLC’s subsidiary Accretive Health, which works with nonprofit hospitals to manage their revenue cycles and navigate the labyrinth of payment rules and processes demanded by the government and private insurers.

Prior to Swanson’s involvement, Accretive Health had contracts with two Minneapolis hospital systems, Fairview Health Services and North Memorial Health Care. The company came to Swanson’s attention when an employee’s laptop, which contained confidential public records, was stolen from a rental car parked in a Minneapolis parking lot.

While this privacy breach is a clear legal violation -- though obviously negligent rather than willful -- Swanson chose to use the case of the stolen laptop as a pretext to challenge Accretive Health’s entire business model. Swanson’s complaint expressed concern about the company "data mining" patient information to help providers lower costs.

Rather than fight Swanson in court, Accretive again cut its losses. After paying a relatively modest $2.5 million settlement, the company exited Minnesota entirely. Unlike the NAF, Accretive Health has not stopped operating in other states. Public officials other than Swanson -- including Chicago Mayor and former Obama Chief of Staff Rahm Emanuel, who sent her a letter asking her to back off the lawsuit -- seem to believe that the company is generally improving health care delivery for the poor and uninsured.

But Swanson’s crusade, like those launched a decade ago by then-New York Attorney General Eliot Spitzer, reminds us that politically ambitious attorneys general can do damage far beyond their own states’ borders. In addition to cleaning up the federal government’s own legislative and regulatory mess, Congress needs to look carefully at how state AGs obstruct sensible federal policy objectives.

This piece originally appeared in Washington Examiner

This piece originally appeared in Washington Examiner