What Nursing Homes Need to Know About CMS Plans to Eliminate Contract Arbitration Clauses

It just got easier to sue nursing homes. How do you protect your facility and your patients while still maintaining a profit?

That’s the struggle for Nursing Home Administrators after the latest CMS ruling on eliminating pre-dispute arbitration clauses in residency agreements, and we’re already fielding questions from clients. Senior executives want to know how the ruling impacts them in the financial, legal, and patient care areas.

After a string of high-profile cases, including a 100-year-old woman strangled in her bed by her roommate, CMS responded by making the most significant change to the rules governing nursing home funding by Medicare and Medicaid in twenty years.This article is a high-level overview of the proposed changes by the Centers for Medicare and Medicaid Services (CMS), as well as the main points you as an Administrator need to know now.

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On October 4, 2016, CMS published a final rule that prohibits nursing homes serving Medicare or Medicaid beneficiaries from requiring that their residents agree to binding arbitration as an alternative to bringing civil lawsuits. To date, many nursing home residency agreements contain binding arbitration clauses requiring disputes to be resolved through arbitration rather than a lawsuit.

CMS initially proposed that such agreements would remain lawful if the nursing home met certain criteria (e.g., executing a separate arbitration agreement consenting to binding arbitration rather than including this provision in the Residency Agreement, and requiring that the nursing home explain the arbitration agreement in “plain language”). However, various stakeholders, including consumer advocates, Attorneys General, plaintiffs’ lawyers, Congress, and the public, urged CMS to bar arbitration agreements altogether in the interest of consumer protection.

Given the strong response, CMS was persuaded to change course. The bar on pre-dispute arbitration clauses will now be a Condition of Participation in Medicare and Medicaid. The rule further restricts the practice of engaging in post-dispute arbitration agreements unless certain criteria are met. The new Rule does not impact those providers who do not bill Medicare or Medicaid.

The regulation, 42 CFR § 483.70(n) (Binding Arbitration Agreements), states:

We are requiring that facilities must not enter into an agreement for binding arbitration with a resident or their representative until after a dispute arises between the parties. Thus, we are prohibiting the use of pre-dispute binding arbitration agreements.

American Health Care Association president and CEO Mark Parkinson said the change “clearly exceeds” the agency’s statutory authority. Whether this ruling will be challenged in court remains to be seen, but for now, Nursing Home Administrators  should expect that this ruling will go into effect in November 2016 as stated by the rule.

How the CMS Rule on Eliminating Arbitration Clauses May Affect Nursing Homes

As the administrator of a nursing home, you no doubt have questions on how this ruling affects your facility. Below are three concerns to address now.

#1: Resolving Disputes Will Be More Costly and More Public

Patients and families with disputes over safety, quality of care, and even wrongful death will no longer be required to resolve their disputes with private arbitration.

If your facility receives federal funding, you will no longer be able to insert arbitration clauses in your contracts. For years arbitration has been the standard. It is typically cheaper and faster than court, and it affords a level of privacy not available in public court cases.

Now patients will have the option of pursuing claims in court, which means you may incur higher legal fees in defending your facility from a lawsuit. So, now is the time to think about how those additional costs may affect you.

#2: Residency Agreements Containing Arbitration Clauses Must Be Changed by November 2016

Admission contracts may no longer contain arbitration clauses beginning in November 2016. The new rule does not affect patients already under contract.

While this ruling does not eliminate arbitration as an option, it does remove it as a requirement to settle disputes.

As a savvy Administrator, you may still prefer arbitration as a more cost-effective and friendly process to resolve patient care disputes, as will some of your clients. However, you will no longer have the contractual assurance that these disputes will go to arbitration.

Be sure to consult an attorney familiar with the CMS ruling in adapting your current admission contracts.

#3: Public Disputes May Harm Your Reputation and Sales

From a marketing and sales perspective, nursing home lawsuits can rapidly become fodder for the media, thereby impacting your ability to recruit new residents. Just one high-profile case can negatively impact a facility for years.

Personal stories in particular stick with the media and the public, and hearing that an elderly person was somehow wronged—even if the claim is later proven to be false, exaggerated, or not the fault of your facility—can unfairly tarnish your brand for years to come.

Going forward, Administrators should include crisis/reputation management services in their budget as a way of blunting negative publicity from lawsuits. In addition, an aggressive publicity campaign of promoting success stories, public outreach programs, and special programs for the elderly will help nursing homes create a positive image to better withstand any future claims.

The Uncertain Future of Arbitration

The practice of arbitration has come a long way from the 1925 enactment of The Federal Arbitration Act, initially meant to speed the process of contractual disputes.

In the past thirty years, arbitration clauses in contracts have become commonplace in contracts ranging from credit cards to employment contracts to service contracts. However, the tide of public sentiment against arbitration is growing, and we do not expect to return to the days of mandatory arbitration clauses in admission contracts.

So...What Does This New Rule Mean for Your Skilled Nursing Facility?