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Government Bans Forced Arbitration Clauses In Nursing Home Contracts

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It just got easier to sue nursing homes over resident abuse and neglect. On September 28, 2016, the Department of Health and Human Services announced a new rule that will prevent nursing homes from including forced arbitration clauses in their contracts. These clauses, which essentially surrender a patient's right to sue, will now be prohibited for any nursing home that receives federal funding. According to the New York Times, the agency's decision could come to strengthen the rights and legal protections of some 1.5 million nursing home residents.

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CMS Prohibits Nursing Home Arbitration Clauses

On its surface, the rule change is simple. On page 12 of a 713-page document published by the Centers for Medicare and Medicaid Services (CMS), you'll read:

"Binding Arbitration Agreements: We are requiring that facilities must not enter into an agreement for binding arbitration with a resident or their representative until after a dispute arises between the parties. Thus, we are prohibiting pre-dispute binding arbitration agreements."

But this short paragraph is expected to have widespread ramifications throughout the nursing home industry, both for residents and the facilities obligated to care for them.

Why Arbitration Is Bad For Nursing Home Residents

Currently, standard practice within the industry, arbitration clauses in nursing home contracts force aggrieved residents and family members to enter arbitration sessions, rather than bringing their claims for compensation in court. The vast majority of nursing homes in operation push arbitration on prospective residents. In a recent survey, only 8% of long-term care companies were willing to accept a new patient without a signed agreement to use alternative dispute resolution.

Arbitration is an alternative to the traditional civil legal process, in which disputing parties hash out their differences before a supposedly neutral third party. An arbiter (or arbitrator) facilitates the dispute by supervising discussion, information exchange and - in many cases - brokering a final settlement.

Eliminating Constitutional Rights

The downsides of arbitration, however, are well-known.

Without formal rules, nursing home residents and their families lose out on many of the constitutional and procedural rights granted in a true court case. Although this lack of formality can be a benefit, it often comes at the expense of the party with fewer resources and less legal experience - almost always the plaintiff. As another drawback, arbitration provides no formal avenue allowing plaintiffs to demand evidence from a long-term care facility, which may hurt their ability to make a compelling case.

The clauses effectively push prospective residents into a no-win scenario, according to Vermont Senator Patrick Leahy, one in which they must "choose between forfeiting their legal rights and getting adequate medical care."

All too often, arbiters turn out to be "charlatans" according to the American Association for Justice. In many cases, arbitration clauses grant nursing homes the right to choose their own arbiter, creating the potential for kickbacks and long-term "working relationships" in which a business-friendly arbiter is given repeat business for resolving cases to the advantage of a defendant. Some arbitration sessions are even held in the offices of attorneys representing the company being accused of wrongdoing.

Arbitration Cuts Plaintiff Compensation

Nursing home residents secure less compensation in arbitration than they would by going to court. In 2009, a study commissioned by the American Health Care Association, a lobbying group for long-term care facilities, found that awards granted in arbitration agreements tend to be 35% lower than if the resident had pursued a nursing home lawsuit.a contract in a nursing home

Facilities, on the other hand, save a lot of money on arbitration. The method can cut the costs of resolving a dispute by nearly 40%. Arbitration is usually less expensive than taking a case to trial, but when alternative methods fail to resolve the dispute, the cost of this failure can severely limit a plaintiffs' ability to proceed.

Even successful arbitration proceedings can be a financial loss for injured nursing home residents and their families. NPR describes the case of Dean Cole, a resident in Minnesota who died after being taken to the hospital severely dehydrated and in a coma. Cole's wife had a solid nursing home neglect case, but she was not allowed to sue the facility due to a forced arbitration contract. While her arguments proved persuasive, and she was awarded over $60,000, the costs of arbitration itself cut that compensation to a mere $20,000.

Nursing Homes Sue Government Over New Rule

The nursing home industry isn't taking the government's new stance on arbitration clauses sitting down. On October 16, 2016, just 18 days after the new rule was announced, the American Health Care Association filed a lawsuit against two top health officials, challenging the government's decision as (ironically) "arbitrary and capricious." The lawsuit has been filed in the US District Court of Mississippi, Oxford Division.

In its complaint, the industry lobbying group points out that federal health regulators have banned all pre-dispute arbitration agreements, even ones that could be fair and beneficial to residents. The Department of Health and Human Services has exceeded its statutory authority, the group says, arguing that neither the Medicare nor the Medicaid acts give the agency power to regulate alternative dispute resolution requirements. Moreover, nursing homes will now be hampered by exorbitant litigation costs, siphoning money away from patient care. At least, that's how nursing homes feel.

Most notable, however, is the following line:

"Long-term care facilities and their residents and residents' families should not be deprived of the ability to choose arbitration, a valuable form of dispute resolution."

The value of arbitration is arguable. The irony of this statement is not. The Centers for Medicare and Medicaid Services has not prohibited arbitration in nursing home cases, and no one is being deprived of the right to choose arbitration of their own free will. On the contrary, CMS has prohibited the common practice of forcing residents to resolve their disputes through arbitration. Against the American Health Care Association's suggestion, CMS has actually given residents and their families the right to choose arbitration, a right they previously did not have because nursing homes gave them no other option.

Nursing Homes Hate The New Rule

It's easy to see why the nursing home industry has taken up arms against the new arbitration rule. For long-term care facilities, the benefits of arbitration go far beyond saving money and reducing settlement amounts.

Arbitration is a good way to keep past indiscretions out of the public's eye, since what goes on during negotiation sessions is often considered confidential information, unlike the proceedings of a civil court case. This was the argument raised by 16 states and the District of Columbia recently, which banded together to argue for an end to arbitration clauses at nursing homes and assisted living facilities. Their arguments, apparently, were enough to persuade the Centers for Medicare and Medicaid Services, an agency within the Health and Human Services Department that controls over $1 trillion in federal funding for long-term care facilities. According to the agency's newest regulations, any facility that continues to place pre-dispute arbitration clauses in its contracts risks losing federal funding.

The Centers for Medicare & Medicaid Services has yet to comment on the American Health Care Association's lawsuit, which asks the court to delay the ban on arbitration clauses until a judge can consider the case. At least for now, the agency's rule is set to go into effect in November.


Laurence P. Banville
Date Published: February 28, 2017
Laurence P. Banville is the managing partner of Banville Law. As an experienced personal injury attorney, Mr. Banville helps clients recover compensation from those responsible for his clients' injuries. Our firm is located in New York City, serving clients from the five boroughs: Manhattan, Brooklyn, Queens, The Bronx, and Staten Island.
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