Federal Government Prohibits Mandatory Arbitration in Nursing Home Contracts

Friday, September 30, 2016
Credit: Kirby Hamilton/Getty Images


Jessica Silver Greenberg and Michael Corkery, © 2016 New York Times News Service

The federal agency that controls more than $1 trillion in Medicare and Medicaid funding has moved to prevent nursing homes from forcing claims of elder abuse, sexual harassment and even wrongful death into the private system of justice known as arbitration.

An agency within the Health and Human Services Department on Wednesday issued a rule that bars any nursing home that receives federal funding from requiring that its residents resolve any disputes in arbitration instead of in court.

The rule, which would affect nursing homes with 1.5 million residents, promises to deliver major new protections.

Clauses embedded in the fine print of nursing home admissions contracts have pushed disputes about safety and the quality of care out of public view. The system has helped the nursing home industry reduce its legal costs, but it has stymied the families of nursing home residents from getting justice, even in the case of homicide.

A case involving a 100-year-old woman who was strangled by her roommate was initially blocked from court. So was a case brought by the family of a 94-year-old woman who had died at a nursing home in Murrysville, Pennsylvania, from a head wound.

“The sad reality is that today too many Americans must choose between forfeiting their legal rights and getting adequate medical care,” Sen. Patrick Leahy (D-Vermont) said in a statement Wednesday.

The nursing home industry reacted strongly against the change. Mark Parkinson, the president and chief executive of the American Health Care Association, a trade group, said in a statement that the change on arbitration “clearly exceeds” the agency’s statutory authority and was “wholly unnecessary to protect residents’ health and safety.”

The new rule on arbitration came after officials in 16 states and the District of Columbia urged the government to cut off funding to nursing homes that use the clauses, arguing that arbitration kept patterns of wrongdoing hidden from prospective residents and their families.

With its decision, the Centers for Medicare and Medicaid Services, an agency under Health and Human Services, has restored a fundamental right of millions of elderly Americans across the country: their day in court.

It is the most significant overhaul of the agency’s rules governing federal funding of long-term care facilities in more than two decades.

And the new rule is the latest effort by the Obama administration to rein in arbitration’s parallel system of justice that was quietly built over more than a decade.

In May, the Consumer Financial Protection Bureau, the nation’s consumer watchdog, unveiled the draft of a rule that would prevent credit card companies and other financial firms from using arbitration clauses that bar consumers from banding together in a class action lawsuit.

While Democrats, including Leahy, have tried to get rid of arbitration through legislation, their efforts have met resistance from various industry groups. The efforts by the consumer agency and now Health and Human Services do not require congressional approval.

Like other rules put forth by the administration, the rule on nursing homes that receive ... federal funding could be challenged in court. But absent those challenges, the rule is scheduled to go into effect by November. Only future admissions would fall under the new rule.

The nursing home industry has said that arbitration offers a less costly alternative to court. Allowing more lawsuits, the industry has said, could drive up costs and force some homes to close.

But some government officials and elder-care lawyers see a different rationale. For corporations, they say, arbitration also potentially keeps embarrassing practices under wraps.

The nursing home rule, which was proposed in July 2015, was aimed at improving disclosure. The agency began to re-examine the rule after a chorus of patient groups raised concerns about the widespread use of arbitration.

The final version of the rule went a step further than the draft, cutting off funding to facilities that require arbitration clauses as a condition of admission.

Lawyers who work with the elderly say that people are being admitted to nursing homes at one of the most stressful moments of their lives. Distraught and often desperate for a room, prospective residents do not fully grasp what they are signing, the lawyers say.

Sometimes, that does not matter. Judges are bound by a pair of Supreme Court decisions, in 2011 and 2013, that blessed the widespread use of arbitration clauses. Those decisions have made it virtually impossible to overturn clauses, even those signed by the most vulnerable nursing home residents.

An appeals court refused to throw out an arbitration clause signed by a man who could not read or sign his name, reasoning that “illiteracy alone is not a sufficient basis for the invalidation of an arbitration agreement.”

In the past decade, arbitration clauses have affected things like cellphone contracts, employment agreements and student loans.

But even as the use of arbitration clauses spread, little was known about what happened to those who took their chances there. Companies argued that arbitration offered a simpler, swifter and less expensive alternative to court, without the headaches and delays.

Those claims, though, were largely anecdotal because arbitrations are confidential and there is no federal database that records their outcomes.

In a yearlong investigation, The Times tried to pierce the veil, getting inside the secretive proceedings. To do that, The Times examined records from more than 25,000 arbitrations between 2010 and 2014 and interviewed hundreds of lawyers, arbitrators, plaintiffs and judges in 35 states.

The proceedings bear little resemblance to court. They have been conducted in the offices of lawyers who represent the companies accused of wrongdoing.

In the case of nursing homes, The Times found many troubling examples where issues of abuse and potential neglect never made it into the public light because they were blocked from court.

In May 2014, for example, a woman with Alzheimer’s was sexually assaulted two times in two days by residents at a nursing home in Lemon Grove, California. A subsequent investigation by the state’s department of public health found the nursing home “failed to protect” the woman.

But when her family tried to hold the nursing home accountable in court, their case was scuttled because of an arbitration clause. Ultimately, they gave up and settled with the nursing home.


To Learn More:

U.S. Supreme Court Makes California Favor Arbitration over Class-Actions (by Ken Broder, AllGov California)

Supreme Court Supports Companies Forcing Arbitration as Alternative to Class Action Suits (by Matt Bewig, AllGov)

Corporations Use Fine Print to Avoid Lawsuits by Consumers (by Noel Brinkerhoff, AllGov)


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