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| Martin S. Kardon |
The effect of such clauses is to divest individuals who sign these agreements of their right to bring any subsequent disputes into a court of law for a jury trial. Instead such persons are compelled to file claims for harm or other losses before a private arbitration panel. Oftentimes the costs of the arbitration, which can be many thousands of dollars (as opposed to standard filing fees), are borne, in part, by the injured party. Discovery can be restricted as well. The proceedings and conclusions of the arbitrators typically remain confidential and out of the public eye. There are no mandatory or enforceable standards for arbitrators of arbitration companies.
An emerging and highly controversial application of FAA-sanctioned arbitration agreements is their insertion into the process of admitting the elderly into skilled nursing facilities. The intended effect of inducing family members — or even the residents themselves — to sign these agreements is to force any subsequent claims for injuries or even death to be heard by private arbitrators habitually selected time and again by the companies operating these facilities, against which the claims are brought.
Study after study has shown that in funneling disputes to arbitration panels, defendant facilities pay less in the amount of the ultimate determination of damages owed to families.[1] As a result, these chain-owned, for-profit nursing homes[2] are avoiding full accountability at the expense of the elderly and their families.
Attempts by state governments to uniformly end this practice have been rebuffed by the courts. For example, in Marmet Health Care Center Inc. v. Brown, 132 S. Ct. 1201 (2010) the U.S. Supreme Court invalidated a portion of the West Virginia Nursing Home Act that rendered null and void any waivers of the right to commence a court action against a nursing home. The Supreme Court held that under the preemption doctrine this provision was invalid.[3] The Supreme Court remanded the case to the West Virginia courts with the instructions that, while a blanket ban on nursing home arbitrations was not enforceable, the court can consider whether or not the specific arbitration agreement in the case was unenforceable under state common law contract principles not specific to arbitration agreements. This is consistent with Section 2 of the FAA, which indicates that, while an arbitration agreement is not invalid merely because it compels arbitration, arbitration may be nullified under basic principles of contract law (i.e. failure of consideration, duress, etc.).
Thus there are currently hundreds of cases before trial courts making their way through state appeals courts that challenge the viability of an arbitration agreement based upon generally applicable contract law principles. Courts have invalidated them on contractual bases responding, no doubt, to the intrinsic unfairness of obtaining “consent” to waive jury rights during a time where family members are awash in distress and emotion, and given the imbalance of power between them and a nursing home poised to care for an infirm loved one. However, even with an acknowledgment of these factors, the states are unable to enact laws outlawing the practice of nursing home arbitration because of FAA preemption.
Efforts to ameliorate this state of affairs in federal legislation have thus far failed. However changes may be in the air.
In the recent proposals to reform the requirements for skilled nursing facilities receiving Medicare and Medicaid reimbursement (the so-called Omnibus Budget Reconciliation Act regulations) the Center for Medicare and Medicaid Services has proposed a list of criteria that must be met where a nursing home asks a resident to accept binding arbitration for any disputes that may arise in the future. This is in some respects an attempt to correct flaws in the process so as to render these intrinsically unconscionable agreements more palatable.
CMS acknowledges, however, in its commentary the problems with admission agreements limiting a nursing home resident’s access to the courts:
While this can be a valid agreement when entered into by individuals with equal bargaining power, we are concerned that the facilities’ superior bargaining power could result in a resident feeling coerced into signing the agreement. ... We are also aware that there are concerns that these agreements should be prohibited in the case of nursing home residents. Therefore, we are also soliciting comments on whether binding arbitration agreements should be prohibited. Federal Register 2015-17207 pp. 172-173.
At this juncture, those who make their primary concern the rights of the elderly (in contrast to the rights of the nursing home industry to reap profits from government support of them) are poised to persuade CMS that the better course is to prohibit all pre-dispute forced arbitration agreements between nursing homes and their residents. The reasons in support of this are:
- Pre-dispute agreements to arbitrate claims for harm to residents of nursing homes benefit the facilities that harm residents, but offer no benefit to the residents themselves. If nursing home corporations receive even partial protection from legal accountability for resident harm the disincentive to allowing it will be diminished placing the elderly at greater risks.
- An agreement to waive legal rights before a dispute has arisen, typically at the time of a resident’s admission — often a confusing, stressful and highly emotional time for a family — will rarely be entered into without coercion (overt or inadvertent) and with the clarity of mind that such decisions should be made.
- When an agreement is presented on a pre-dispute basis, residents or their families will inevitably disregard the possibility that there will be neglect or abuse during a residency (otherwise the families would not leave their elderly in the facility) and mechanically execute the agreements so as not to “make waves” with a facility where they will be consigning their loved ones.
- Even if pre-dispute arbitration agreements are prohibited, there would be nothing to prevent arbitration of a dispute after a dispute or harm has occurred, when a family has full knowledge of the circumstances, as well as the time and capacity to make a considered decision to do so. If an arbitration would be fair, equitable and of concrete benefit to a resident or her survivors, there is no reason the decision to surrender the right to a jury trial would not be made then.
- In the event of Medicare payments to treat harm arising from substandard care, the families’ recoveries include legally mandated requirements to reimburse the government for the monies paid by it to treat avoidable harm. This shifts the responsibility to pay for tortious misconduct from the taxpayers back to the tortfeasors. Reducing recoveries protects the tortfeasors.
At this juncture, with the baby-boom generation poised to call upon enormous resources for end-of-life care, it is time to consign pre-dispute forced arbitration agreements to the dust bin of history. This will serve to protect the coming swell of nursing home admissions by preserving rather than minimizing the accountability of the large profit-making chains that are inexorably gathering an increasing portion of nursing home beds.
—By Martin S. Kardon, Kanter Bernstein & Kardon PC
Martin Kardon is a partner in Kanter Bernstein & Kardon's Philadelphia office. Kardon is the current chairman of the nursing home litigation group at the American Association for Justice and is a frequent lecturer throughout the country on the topic of long-term care litigation. He is a former assistant city solicitor for Philadelphia's Law Department.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] A study prepared by actuaries at AON Global Risk Consulting on behalf of insurers and large nursing home corporations found in 2013 that in comparing outcomes of arbitrations to verdicts by juries where nursing homes were found responsible for harm to residents payments were 16 percent lower when the case was decided by an arbitrator. Of 211 reported cases against nursing homes with outcomes of $250,000 or higher, 69 of those occurred in arbitration as compared to 142 heard in the public courts. 2013 Long Term Care General Liability and Professional Liability Actuarial Analysis, AON Global Risk Consulting, Columbia, MD. Released Nov. 21, 2013. See http://www.aon.com/risk-services/thought-leadership/reports-pubs_2013-long-term-care-benchmarking-report.jsp
[2] A study performed by the Kaiser Family Foundation in 2013 determined that nationally 68 percent of nursing homes are run for-profit and 55 percent of them are owned by chains. This number varies by state. See http://kff.org/medicaid/fact-sheet/overview-of-nursing-facility-capacity-financing-and-ownership-in-the-united-states-in-2011/
[3] As this court reaffirmed last term, "When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA." AT & T Mobility LLC v. Concepcion, 563 U.S. ––––, ––––, 131 S.Ct. 1740, 1747, 179 L.Ed.2d 742 (2011). Marmet Health Care Center Inc. v. Brown, 132 S. Ct. 1201, 1203, 182 L. Ed. 2d 42 (2012)