New federal rule will cut nursing home arbitration clauses

By Chris Dickerson | Sep 30, 2016

WASHINGTON – A new federal rule will make it more difficult for nursing homes to take legal claims to arbitration.

On Sept. 28, the Centers for Medicare and Medicaid Services, which is part of the U.S. Department of Health and Human Services, issued a rule barring any nursing home that receives federal funding from requiring residents to resolve disputes in arbitration rather than in court. The CMS controls more than $1 trillion in Medicare and Medicaid funding.

"Today's rules are a major step forward 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," CMS acting administrator Andy Slavitt said of the changes.

While arbitration has reduced legal costs for nursing homes, critics of the process say arbitration has prevented nursing home residents and families from getting justice.

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

Meanwhile, Mark Parkinson, the president of the American Health Care Association, said the change is another example of federal overreach.

“AHCA is extremely disappointed that CMS included in the final rule a provision banning all pre-dispute arbitration agreements,” he said in a statement. “That provision clearly exceeds CMS's statutory authority and is wholly unnecessary to protect residents' health and safety.

“We are considering the appropriate steps to take in light of this unjustified action by CMS."

The new rule comes after officials from 16 states and the District of Columbia pushed for the change. It is the most significant change to the rules governing federal funding of long-term care facilities in more than two decades.

It follows a rule unveiled in May by the Consumer Financial Protection Bureau to prevent credit card companies and other similar firms from using arbitration to prevent consumers from filing class-action lawsuits.

The new rule, which goes into effect by November and is meant only for future admissions, likely will challenged in court at some point.

Charleston attorney Rusty Webb called the new rules great news for consumers.

“It’s going to prohibit nursing homes from putting in arbitration clauses in their contracts,” Webb said. “When someone takes a loved one to a nursing home, it’s usually a stressful time. Things aren’t always explained, people sign everything. But, they sign away their rights to file a claim in the court system, and they usually sign away their right to be part of a class action if there is systemic problem.

“With the new rules, lawyers no longer will have to go to court for the court to determine if those arbitration clauses were entered into fairly.”

Webb said consumers in that situation currently have no bargaining power. It’s a “take-it-or-leave-it” proposition.

“If you have to take someone to a nursing home, you’re basically hoping nothing bad happens,” he said.

Webb said he isn’t opposed to arbitration.

“I think it should be offered as one of a number of options,” he said. “You should have an option to go to arbitration. It’s less expensive and faster. But you also should have the option of filing an individual lawsuit or entering into a class action. Now, the nursing homes don’t give you options. They bind you to this one remedy for your grievance.

“Most of us in the trial bar believe the arbitration system is fair to the consumer. The arbitration system often is loaded with defense lawyers who make the decisions.

“With arbitration, you don’t have to go through this long process to get you in front of a jury to hear the case. But cases like this, when you need to fight the mandatory arbitration clause, it just creates more litigation.”

In fact, Webb said he has an arbitration case that will be heard by the state Supreme Court later this month. But it isn’t involving a nursing home.

“I’m fighting one right now against Salem International University,” he said. “We won in Harrison County (Circuit Court). They ruled the arbitration clause was not valid.”

The president of the American Tort Reform Association called the CMS’s new arbitration rule the Obama “administration’s latest gift to Democrats’ most reliably generous campaign donors:” plaintiffs’ lawyers.

“The elimination of arbitration, which provides a relatively quick and inexpensive means to resolve disputes without going to court and further enriching trial lawyers, has long been the Holy Grail of lawsuit industry lobbyists,” ATRA’s Tiger Joyce said. “And what those lobbyists were unable to achieve through Congress during the first few years of the Obama administration they’ve sought to squeeze from politically allied regulators since.”

Joyce said plaintiffs’ lawyers have wielded “extraordinary influence” during Obama’s eight years in office.

“The new rule from the Centers for Medicare & Medicaid Services offers a flimsy rationale for effectively ignoring the will of Congress and the 91-year-old, frequently upheld Federal Arbitration Act,” Joyce said. “The FAA protects contractual arbitration clauses between consenting parties as wholly lawful and enforceable.

“Nevertheless, this new anti-arbitration rule bans such clauses and unleashes personal injury lawyers on our already struggling nursing home sector, just as the giant baby-boom generation is poised to begin making unprecedented demands on the sector. Why would an administration that says controlling health care costs is among its top priorities open the door for multimillion-dollar lawsuits that will only make nursing home care more expensive and less accessible?”

Joyce said he expects more “midnight” regulations in the final months of Obama’s presidency.

“For example, ignoring its own research that essentially found arbitration beneficial to consumers and sellers alike, the Consumer Financial Protection Bureau is soon expected to issue its own anti-arbitration rule, inviting class-action lawyers to rifle the deep pockets of financial service providers at the expense of consumers when litigation costs are again passed on in the form of higher prices,” he said. “Food and Drug Administration regulators are also expected to finalize a rule they initially proposed in 2013 after incredibly meeting only with lawsuit industry lobbyists.

“The rule will effectively overturn, without the say-so of Congress, a 2010 U.S. Supreme Court decision that protects the makers of inexpensive generic drugs from lawsuits that allege the inadequacy of warning labels.”

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American Tort Reform Association Centers for Medicare and Medicaid Services Consumer Financial Protection Bureau

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