2016 Was a Busy Year: Developments in Nursing Facility Arbitration Law
By Joshua Urquhart on February 24, 2017
Nursing home arbitration agreements get a bad rap. But as most practitioners in the field know, nursing facility arbitration agreements seem here to stay, at least (possibly) until recently. Arbitration is thought by many to offer significant flexibility and efficiency vis-à-vis litigation, and proponents in the skilled nursing industry cite arbitration as an important tool to reduce litigation costs – including, of course, the costs associated with “runaway jury” punitive and noneconomic damages verdicts, which can be crippling to industry participants.
The enforceability of nursing facility arbitration agreements has long been a hotly contested issue. It probably is fair to say that, in general, courts broadly view these agreements as enforceable in a vacuum, but they will approach any particular instance with a healthy degree of skepticism. Occasionally, state courts have tried to go one step further than analyzing and rejecting nursing facility arbitration agreements on an ad hoc basis and have announced a per se rule against enforceability of such agreements. That typically does not end well for those courts.
The relatively recent Marmet decision is a good example of this latter scenario. There, the West Virginia Supreme Court issued a decision in a consolidated group of cases holding that pre-dispute nursing facility arbitration agreements were void as against public policy under state law The decision was appealed to the U.S. Supreme Court, which granted certiorari and promptly slapped down the state court. In a (relatively) scathing per curiam opinion, the Court emphasized: “As this Court reaffirmed last Term, ‘[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.’ … That rule resolves these cases. Since that decision, state courts seem to be somewhat more receptive to honoring and enforcing nursing facility arbitration agreements.
In 2016, however, federal regulators attempted to throw a curveball to the skilled nursing industry. On September 28, 2016, the Centers for Medicare and Medicaid Systems (“CMS”) announced a new rule ostensibly intended “to make major changes 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.” As part of this new rule, which would go into effect on November 28, 2016, CMS banned the use of pre-dispute arbitration agreements by nursing homes on a going-forward basis. It noted that the rule did not apply to existing arbitration agreements (thus avoiding running afoul of the Federal Arbitration Act), and it specifically allowed nursing facilities and plaintiff-residents to agree to arbitrate after a dispute has arisen. But the sort of prospective arbitration agreement that is presented to residents and potential residents at the time of admission would be prohibited from now on. Although the rule technically only applied to nursing homes that accepted Medicare and Medicaid funds, as a practical matter, that included virtually all such facilities.
Needless to say, this was a controversial measure. And the industry did not take it lying down. On October 17, 2016, a group of trade organizations and nursing facility operators filed a lawsuit in the U.S. District Court for the Northern District of Mississippi challenged the pre-dispute arbitration rule. On November 7, 2016, the court ultimately agreed with the challengers and entered an order preliminarily enjoining it. It held in relevant part that a federal agency regulation effectively banning a certain type of arbitration agreement, even on a prospective-only basis, would be flatly inconsistent with the overarching pro-arbitration policy and purpose embodied by the FAA. On December 9, 2016, CMS capitulated and sent a memorandum to Medicaid state survey administrators announcing that the rule should not be enforced unless and until the litigation was resolved and the injunction was lifted. Especially in light of the change in administrations, the ultimate status of the pre-dispute arbitration rule is uncertain at best, and it is currently not being enforced.
So where does that leave nursing facility arbitration agreements? Are facilities free to include them in admissions packets without fear that they will be unenforceable? The answer to those questions necessarily is a qualified one. Pre-dispute nursing home arbitration agreements still are not unenforceable per se, but at the same time, they will be looked upon with varying degrees of skepticism by courts. As noted above, many post-Marmet state courts seem to have gotten the message that animus towards nursing home arbitration agreements will not be tolerated by the federal judiciary. But “many” does not mean “all” (or even, necessarily, “most”), and there are still a number of states and jurisdictions in which courts appear likely to continue to go out of their way to find reasons as to why any particular arbitration agreement should not be enforced.
As such, it is crucial that any nursing facility or operator of facilities that wants to institute (or continue to use) an arbitration program go to great lengths to dot every “i” and cross every “t” when offering residents the opportunity to enter into an arbitration agreement. This includes proactively reviewing the form arbitration agreement currently in use to ensure it complies with state contract law requirements, and training admissions staff so that the avoid typical pitfalls when presenting arbitration agreements to residents or prospective residents to sign (e.g., making sure that the resident has capacity to sign or that there is sufficient documentation for a representative to sign on behalf of that individual, making sure that the agreement is properly witnessed and countersigned, etc.).
Litigation over the arbitrability of a nursing facility dispute can itself be so costly and time-consuming that it removes many of the efficiencies and related advantages of arbitration. As is usually the case, it is best to try to address that potential issue on the front end of things.