Nursing Home Industry Sues Over New Government Rules Barring Forced Arbitration Agreements

The lawsuit claims that the government agency did not have the authority to regulate use of arbitration

Nursing Home Industry Sues Over New Government Rules Barring Forced Arbitration Agreements
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October 19, 2016

Back in September, the federal government's Center for Medicare and Medicaid Services (CMCS) issued new rules for nursing homes that prohibited most of them from using forced arbitration agreements to prevent new residents from suing them.

Now, nursing home operators and industry trade groups are suing the agency.

The basics of forced arbitration are easy to understand. A clause in a contract states that both the consumer and the company agree that either party has the right to take any legal dispute between the two out of court and into private, binding arbitration.

The issue will not be heard by a judge and jury but instead by a professional arbitrator—one who may possess a great deal of familiarity with the company and its lawyers. A recent report issued about arbitration with nursing homes found that one arbitration firm had handled 400 such hearings involving the lawyers for just one home.

In addition, the majority of arbitration clauses include a condition prohibiting consumers from joining together in any kind of class action, even during arbitration. If several residents of a nursing home believed they were being defrauded by the home, they would each have to go through arbitration individually with no guarantee that the arbitrators would reach the same findings in each case.

Under the new rule, nursing homes that want to accept Medicare or Medicaid have to stop placing forced arbitration clauses in new contracts. Resident agreements that were signed prior to the issuing of this rule would not be affected.

The American Health Care Association and others filed a lawsuit yesterday in a federal court. It claims that CMS exceeded its authority in issuing the rule, alleging that the agency does not have any authority under the law to regulate nursing facilities' use of arbitration.

The lawsuit further argues that even if the law does allow the rule, it is still "arbitrary and capricious" because nursing homes and their residents would no longer receive the "benefits of arbitration and result in the siphoning of resources toward litigation costs and away from resident care."

The new rule does not prohibit residents from choosing to enter arbitration; it means that the resident's nursing home cannot force the matter out of court. However, the suit argues that "parties almost never agree to arbitration in a particular case after a dispute has arisen."

According to George Closer, senior policy counsel at Consumers Union, the lawsuit is meritless.

"CMS is well within its legal authority to require nursing homes that want federal certification not to block residents and their families from taking legal action to ensure that basic legal protections are enforced," stated Slover. "There have been too many instances of gross abuse and neglect. Nursing homes should not be able to slip forced arbitration clauses into admissions paperwork to shield themselves from accountability. This rule will help ensure that nursing home operators are held accountable and face a strong deterrent."

Public Citizen's Susan Harley saw the irony in how the nursing home industry is using the legal system to try to prevent its residents from using the legal system.

"It's obviously striking that these nursing homes are using the court system to deny seniors and other residents of their right to their day in court," Harley said.

Although supporters of arbitration often try to emphasize how much litigation costs and how much the plaintiffs' attorneys can financially benefit from it, Harley argues that bringing legal disputes into the public forum of courts enables the uncovering of bad industry practices.

"Forced arbitration is more than just a ripoff clause; it's a shroud of secrecy that allows abuse and neglect to fester outside the public eye," she stated. "Lawsuits alert watchdogs, public and private, to monitor these corporate facilities that are intended to care for our most vulnerable populations."