Nursing Home Arbitration Ban Blocked By Federal Judge

A federal judge has ordered an injunction against federal regulators, which prevents the enforcement of a ban on forced arbitration requirements in nursing home agreements. 

U.S. District Judge Michael Mills of the Northern District of Mississippi issued an order (PDF) on November 7, granting a motion by the American Health Care Association and other groups that sought to prevent the arbitration ban from going into effect, arguing that the U.S. Centers for Medicare and Medicaid Services (CMS) had overstepped its authority.

The new Reform Requirements for Long-Term Care Facilities rule, announced in late September, would impact more than 1.5 million residents at 15,000 nursing home and long-term care facilities nationwide. One of the major provisions of the new rule gets rid of forced arbitration clauses in nursing home contracts. The rule was slated to go into effect on November 29.

The nursing home reform requirements include a host of new requirements ranging from a prohibition on hiring employees with a disciplinary action on their license as a result of nursing home abuse, to a host of new quality of care provisions. However, the focus of the lawsuit was on a rule that targets pre-dispute arbitration clauses found in many contracts, which require residents and families to waive their ability to pursue a lawsuit for nursing home neglect injuries through the court system.

Forced arbitration, also known as pre-dispute arbitration clauses, are commonly found in credit card agreements, loan paperwork, mobile wireless contracts, nursing home entrance agreements and other circumstances, often placing consumers are placed in a position where they have no alternative but to waive their right to go to court in order to obtain services.

Critics have long opposed forced arbitration clauses, indicating that they place consumers in a position where they are unable to negotiate and must sign the agreement to obtain critical services. Forced arbitration is generally found to favor nursing homes, powerful financial firms and other industries that require the clauses.

While Judge Mills agreed that, legally, the CMS had overstepped its authority, he also supported the CMS’s concerns, and those of other critics, regarding the use of forced arbitration in nursing homes.

“Many nursing homes will obtain signatures from residents in spite of grave doubts about their mental competency, or, more often, they will choose to have relatives of the residents sign the agreements, even when no power of attorney has been executed,” he said. “Many of these same nursing homes will later file motions to compel arbitration on the basis of those suspect arbitration agreements; and…The litigation of these arbitration actions can only be resolved in time-consuming litigation, which serves as a very significant incentive against filing suit in the first place. This court has repeatedly seen these facts play out in its courtroom, and it has seen these fact patterns repeatedly arise in published decisions from other Mississippi courts.”

Judge Mills said that neither side was able to cite a single decision that clearly establishes who will ultimately prevail in the courts, however he found enough case precedent to believe plaintiffs have enough of a chance to win, and might be likely to win, and thus grant the injunction.

“This case places this court in the undesirable position of preliminarily enjoining a Rule which it believes to be based upon sound public policy,” Judge Mills wrote. “[T]his court believes that nursing home arbitration litigation suffers from fundamental defects originating in the mental competency issue, rendering it an inefficient and wasteful form of litigation.”