Nursing homes and mandatory arbitration

Emboldened by a string of aggressive Supreme Court decisions, businesses are increasingly turning to arbitration to shield themselves from civil litigation. Odds are, for example, that you’ve signed away your right to sue your cell phone carrier and cable company. Not that you noticed. You just clicked “yes” when asked if you’d read pages of stultifying boilerplate. Or check out your employment contract: workers are increasingly being asked to forgo their right to sue when they take a job.

Arbitration does have its advantages. It’s cheaper and faster than civil litigation, and arbitrators can be selected who have some relevant expertise. In a competitive market, the benefits of arbitration should accrue to consumers in the form of lower prices.

But the extraordinary growth of mandatory arbitration over the past couple of decades is one of the more unnerving developments in modern American law. Genuine consent to arbitration is often fictional. Arbitrators tend to favor the repeat players who hire them—companies, not consumers. Arbitration agreements can forestall class action lawsuits, making it difficult or impossible to hold companies to account for small-in-size but widespread injuries. And where civil litigation can shine a light on shoddy business practices, arbitration is shrouded in secrecy.

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In October 2016, the Centers for Medicare and Medicaid Services (CMS) decided to push back on mandatory arbitration. By rule, CMS adopted a novel “condition of participation” for Medicare and Medicaid. Nursing homes that participate in the programs—which is to say, all nursing homes—could no longer ask their residents to sign away their right to sue upon entering the nursing home. (The rule covered only pre-dispute arbitration; residents could still agree to arbitration once a dispute arose.)

Why? As CMS explained, the elderly residents of nursing homes will typically lack the capacity to sign away their rights. Many have some form of dementia, and a much higher percentage will be physically disabled or emotionally overwhelmed. Even if adult children actually sign the paperwork, they usually don’t have powers of attorney—and, given the stress and difficulty of moving mom into a nursing home, they may not be in much of a position to negotiate, either. Plus, geographic and financial constraints will often give nursing homes substantial bargaining power.

Beyond that, waiving the right to sue raises safety concerns. Nursing homes are notoriously prone to quality problems, and those problems can have devastating consequences. Tort law is one way—albeit not the only way, and not necessarily the best way—to hold nursing homes to account for their negligence. If nursing homes can shield themselves from lawsuits, they might take worse care of their residents.

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Predictably, the nursing home industry sued, arguing that the rule exceeded CMS’s authority. In November, a federal judge in Mississippi sided with the plaintiffs, and entered a preliminary injunction prohibiting CMS from applying the rule. The agency promptly appealed. In the meantime, for reasons I don’t fully understand—and perhaps for no good reason at all—the agency chose not only to comply with the ruling in Mississippi, but across the country.

Then President Trump took office. In early June, with little fanfare or notice, the administration dismissed the appeal and proposed to undo the change altogether. “Upon reconsideration, we believe that arbitration agreements are, in fact, advantageous to both providers and beneficiaries because they allow for the expeditious resolution of claims without the costs and expense of litigation.” The comment period is open through August 7, and the rule is likely to be finalized in 2018.

With health reform dominating the news, this volte-face has been overlooked. That’s a shame: it’s a big deal, for reasons I’ll explore over the next few weeks in a series of posts. What does the research say about civil litigation and nursing home safety? Can nursing home residents really make informed decisions about surrendering their constitutional right to a jury trial? And is it true that CMS lacks authority to regulate arbitration agreements?


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