CMS bans pre-dispute forced arbitration in nursing home contracts

Written by Diane M. Zhang and originally published on the AAJ.

On Sept. 28, the Centers for Medicare and Medicaid Services (CMS) issued a final rule prohibiting nursing homes from using pre-dispute arbitration agreements in admissions contracts dated on or after Nov. 28, 2016. The rule applies to all skilled nursing facilities that receive money from Medicare and Medicaid—the vast majority of all facilities in the United States.

On Sept. 28, the Centers for Medicare and Medicaid Services (CMS) issued a final rule prohibiting nursing homes from using pre-dispute arbitration agreements in admissions contracts dated on or after Nov. 28, 2016. The rule applies to all skilled nursing facilities that receive money from Medicare and Medicaid—the vast majority of all facilities in the United States. It is part of CMS’s first comprehensive update since 1991 in an effort, the agency stated, to “improve the care and safety of the nearly 1.5 million residents in the more than 15,000 long-term care facilities that participate in the Medicare and Medicaid programs.”

Forced arbitration agreements have long been an issue in nursing homes. Because many admissions agreements contain a mandatory arbitration clause, residents and their families cannot sue the nursing home in cases of injury, abuse, sexual assault, or even murder. Although the nursing home industry argues that arbitration is a less expensive alternative to lawsuits, allowing more nursing homes to stay open, forced arbitration prevents injured residents and their families from getting their day in court. Rather, their claims are heard in a biased system that often has no semblance of neutrality; in some instances, injured individuals’ claims are heard before lawyers that also represent—and are paid by—the nursing homes.

“When nursing home residents suffer neglect, serious injuries, or sexual and physical abuse, they and their families should be able to hold the facility accountable,” explained Julia Duncan of AAJ Public Affairs. “For years, the nursing home industry has used forced arbitration to cover up allegations of abuse and neglect in secret proceedings before their hand-picked arbitration provider.”

Paul Bland, the executive director of Public Justice in Washington, D.C, explained the dangers of forced arbitration clauses, which may serve as a shield for nursing homes’ dangerous practices and policies. “The secretive system of private arbitration has been used on a number of occasions to prevent the public from learning about scandals and terrible treatment at some homes,” he said. “It is a system that protects homes against the consequences of providing poor care, and is obviously something that CMS should take very seriously.”

CMS first issued its proposed regulatory update for nursing homes in July 2015. It required that nursing homes using a forced arbitration agreement explain its meaning to a potential resident; that the resident would have to acknowledge understanding the agreement; that admission to the facility could not be contingent upon the resident or his or her representatives signing the agreement; and that arbitration sessions would be conducted by a neutral arbitrator. CMS, at the time, also stated that it was considering banning arbitration agreements in nursing homes completely.

During the three-month comment period, the public weighed in. Proponents of the ban pointed out that it is nearly impossible for there to be fully informed consent to arbitration before a dispute has arisen: When individuals seek rooms in a nursing facility, it is often at a stressful point in their lives—and one in which they have limited choices. Mandatory arbitration in such a context is fundamentally unfair, they asserted.

Pittsburgh attorney Robert Daley, who handles nursing home claims, illustrated a typical situation. “An elderly family member is being admitted to a skilled nursing facility, almost always from a hospital, and oftentimes the family—and perhaps the resident—recognizes the very real possibility that the elderly family member might not ever be able to return home. They arrive and are presented with admission paperwork, and an admission coordinator, even if well intentioned, rarely or ever explains the paperwork in detail. The paperwork is likely never read in full because if it were, each admission would likely take eight hours or more! The typical admission packet requires 25 to 35 signatures, one of which is to an arbitration agreement. For all practical purposes, all anyone is trying to do is get through the paperwork and get their elderly loved one comfortable and secure. Even the most fairly written arbitration agreement is unfair in that situation because the family does not know they are giving up constitutional rights and giving up their right to go to court if something goes wrong.”

Opponents of the ban argued that CMS does not have the statutory authority to issue such a ban, pointing to U.S. Supreme Court decisions that have recognized the validity of forced arbitration clauses. Opponents also argued that the ban would conflict with the Federal Arbitration Act (FAA).

Duncan described the collective effort to strengthen the proposed rule. “AAJ joined with a broad array of consumer, health and safety, and senior advocacy organizations to ensure that CMS restored residents’ access to justice,” she said. “After a lengthy deliberation period and nearly 10,000 comments filed, CMS issued a final rule prohibiting forced arbitration for all residents of nursing homes funded by federal dollars.”

The final rule banned pre-dispute arbitration clauses completely with two important notes: First, the rule does not apply retroactively. It will cover only admissions agreements signed on Nov. 28, 2016 and later. Second, the rule prohibits onlypre-dispute mandatory arbitration agreements. A resident would have the right, after a dispute has arisen with the nursing home, to choose arbitration. In those scenarios, the agreement would still have to be explained to the resident in a manner he or she understands, and the resident would have to acknowledge that he or she understands the agreement.

Daley emphasized the final rule’s importance. “The proposed rule issued last July would not have proposed a significant hurdle to a facility seeking to use an arbitration agreement,” he explained. “In essence, a concern was that the proposed July rule set a blueprint for an arbitration agreement that state courts might be more likely to uphold. That concern is now alleviated by the final rule.”

CMS also addressed the argument that it does not have authority to issue such a ban. “The plain language of the FAA applies only to existing arbitration agreements voluntarily made between private parties; it does not compel or require the use of arbitration between private parties,” the final rule reads. “Because it does not prescribe circumstances in which arbitration agreements must be used, it does not impinge on federal agencies’ rights to issue regulations regulating the conditions of adoption of such agreements, assuming that the Secretary otherwise has proper statutory authority. The proposed and final regulation would have no legal effect on the enforceability of existing pre-dispute arbitration agreements between LTC [long-term care] facilities and patients, and therefore we believe that the terms of the FAA are not implicated.”

Bland explained, “The statute governing Medicare and Medicaid reimbursements clearly provides that the agency is responsible for ensuring that patients receive the best possible care. Just as CMS predicates the receipt of federal dollars on compliance with other regulations and requirements—for example, homes may not be understaffed or make kickbacks to certain providers—it is entirely appropriate for CMS to condition federal taxpayer dollars on the provision of safe and high quality care at nursing homes and the prohibition of forced arbitration clauses.”

Daley also addressed the rule’s future—rather than retroactive—application. “If CMS had attempted to apply the rule retroactively to arbitration agreements already signed, the rule might have run headlong into the FAA,” he said. “While arguments may be made that making the rule retroactive would be permissible, I think this was an example of CMS compromising just a bit, and the compromise will still accomplish the ultimate goal—fairness in the nursing home admission process.”

Daley also pointed to the future work that should be accomplished on behalf of nursing home residents. “Looking forward, many states—through individual state regulation—have created separate causes of action for elder abuse stemming from violations of state laws or regulations. It would be a terrific thing if Congress or CMS would create a federal equivalent by permitting a private cause of action for violations of the Nursing Home Reform Act [1987 legislation designed to fight nursing home abuse] or its regulations.”

Bland added, “The final rule is a historic and substantial step in favor of making nursing homes safer and improving the quality of medical care provided to some of America’s most vulnerable people. It is likely to literally save a number of lives. Advocates for patients are all extremely encouraged by this important and very positive development, and for good reason.”