Nursing homes' use of binding arbitration comes under fire

Melody Johnson felt heartbroken at having to bring her 83-year-old mother—who had diabetes, high blood pressure and incontinence—to an Oklahoma nursing home in 2009.

The Anadarko resident wasn't focused on the stack of papers the nursing home handed her family upon admission. She and her family didn't realize a binding arbitration agreement was among those documents. The agreement said any claims against the facility would have to go to arbitration, not to court.

“It was kind of like here's 1,000 papers,” Johnson, now 51, said. “Some they explain, and some they don't.”

The family didn't fully understand what they had signed until they tried to sue Grace Living Center Chickasha after the death of their mother, Arda Lee Churchill, in 2011, which Johnson alleges was a result of neglect.

Ultimately, the matter went to the Oklahoma Supreme Court, which refused to enforce the arbitration agreement, saying that the family member who signed the agreement on Churchill's behalf didn't have the authority to do so. A lower state court is now examining the merits of what has become a wrongful-death case.

Grace Living Center Chickasha said in a statement that it “strongly” denies the allegations and it is “committed to providing quality care to all of our residents.”

Some say the Jones family situation is typical when it comes to binding arbitration agreements. Though some patients, their families, attorneys and patient advocacy groups have been battling binding arbitration agreements in nursing homes for years, the vast majority of nursing homes now use them, said Greg Crist, a spokesman for the American Health Care Association, an industry group. Industry groups and their lawyers argue the agreements are a useful tool for saving patients and facilities time and money—cash that is better spent on patient care.

But families frustrated by the quality of care their loved ones sometimes receive at homes say they often feel pressured to sign them and don't understand what they're agreeing to. They don't realize that awards in arbitration in nursing home cases are usually lower than those reached in court.

Claims settled in arbitration have clearly been a good deal for nursing homes. Agreements reached out of court cost about 16% less on average than claims that do not involve arbitration, according to insurance broker Aon Global Risk Consulting.

Now, a new CMS proposed rule aims to put an end to the long-running feud over the use of binding arbitration agreements in nursing homes. The rule would require nursing homes serving Medicare and Medicaid beneficiaries to explain binding arbitration agreements to patients and families before they sign them.

The rule also would prohibit nursing homes from requiring residents or their families to sign the agreements as a condition of admission. The Obama administration's proposal follows failed bills in Congress to invalidate the agreements in nursing homes and a CMS memo issued more than a decade ago that argued such agreements, when required as conditions of care, might compromise residents' quality of care and could violate federal requirements.

There's general agreement that a rule barring facilities from requiring arbitration agreements is long overdue. But while industry representatives generally support the proposed rule, parts of it have left some trial lawyers and patient advocates fuming.

They say it might create some legal gray areas for patients and facilities, such as leaving room for interpretation when it comes to what might constitute adequate explanation of binding arbitration agreements. They also worry the rule would legitimize even wider use of the agreements in nursing homes.

Indeed, some say the CMS should ban pre-dispute arbitration agreements altogether. They argue that stressed families shouldn't be asked to sign such agreements in the first place and that it's tough to imagine facilities fully explaining all the legal consequences to families. “It's kind of like putting lipstick on a pig,” said Robyn Grant, director of public policy and advocacy for the National Consumer Voice for Quality Long Term Care. “With all due respect to pigs, it's still a pig.”

The proposed rule says that if a nursing home asks a resident to sign a voluntary binding arbitration agreement, the facility must make sure residents understand what they are signing. “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,” according to the proposed rule.

To address that, the rule proposes that facilities be required to explain any binding arbitration agreement “to the resident in a form, manner and language that he or she understands and have the resident acknowledge that he or she understands the agreement.”

Crist said the association supports the rule. It has consistently discouraged its member nursing homes from using the agreements as a requirement of admission.

“We want them to be able to ask questions and really be at peace with what they're signing and understand it,” Crist said. “It's not as if it's slipped into a 100-page document and the hope is it's not read.”

Drew Graham, a partner at Hall Booth Smith who represents nursing homes, said providers generally are already explaining the voluntary agreements to prospective residents. “They're very careful about who signs it and careful to explain it,” Graham said.

But plaintiffs' attorneys say they don't find that to be case. Michael Thamer, an attorney in Callahan, Calif., who works on elder abuse cases, said nursing homes insert the agreements into the general admissions paperwork. “Buried in there is the arbitration agreement, and I would say the average person looks at it and thinks it's all part of the admissions packet,” Thamer said. “That's kind of how they game it.”

In its proposed rule, the CMS said, “Any agreement for binding arbitration should not be contained within any other agreement or paperwork addressing any other issues.”

Even if the rule were to become reality, some question whether the requirement that the agreements be explained would make much of a difference. Steven Levin, a plaintiffs' attorney at Levin & Perconti in Chicago, said those explaining the agreements often don't fully understand them themselves.

Many plaintiffs' lawyers and others say they don't oppose arbitration for all nursing home disputes. But they don't believe patients should be asked to sign arbitration agreements before an incident has occurred. “There are times when it might be appropriate and the right way to go for a consumer,” said Grant of National Consumer Voice for Quality Long Term Care. “But to make that decision, (the patient and family) need to know the facts and situation around what happens and (they) need to know the risks and benefits.”

Martin Kardon, a partner at Kanter, Bernstein and Kardon in Philadelphia and chair of the nursing home litigation group at the American Association for Justice, said offering the agreements at admission is “predatory.” “If it's such a great deal why do you have to get people to sign the day they're admitting their mother to a nursing home and under stress and afraid—probably one of the lowest moments of their lives?” Kardon said. “The answer is it's not a great deal.”

The U.S. Supreme Court upheld nursing homes' right to enforce binding arbitration agreements in cases involving allegations of personal injury or wrongful death in a 2012 federal case out of West Virginia. According to a brief by the American Health Care Association on the issue, those who depend on skilled-nursing facilities “are feeling the effect of increased insurance premiums for long-term care providers. The difficulty in obtaining affordable insurance and threat of costly lawsuits have forced some long-term care providers to go without liability coverage, and others to close their doors altogether.”

Nursing home claims costs are increasing about 5% a year, with an average cost of about $220,000 a claim, said Christian Coleianne, an associate director and actuary at Aon. Many large nursing home chains are self-insured, meaning they pay claims up to a certain amount and then have insurance to pay claims beyond that amount.

Crist said lawsuits against nursing homes have been on the rise in some areas of the country. “It's almost as if it's a caravan of traveling plaintiffs' attorneys preying on states where they know it's going to be a friendly environment where they can easily set up shop, run negative ads trying to bait suits,” Crist said. “It's not conducive to an effective healthcare delivery system, period.”

Stephen Ware, a law professor at the University of Kansas, argues that rather than eliminating arbitration agreements in nursing homes entirely, it makes more sense to continue to allow them and let courts decide when they're enforceable or not by looking at the facts of each case. “It's helpful if the costs of resolving disputes go down, and I think, generally, arbitration works pretty well to do that,” he said.

But Johnson's case shows how leaving that decision to the courts can create problems, said Johnson's attorney, Ray Maples with Maples, Nix & Diesselhorst in Edmond, Okla.

The legal battle in that case has now lasted nearly four years because of disputes over the arbitration agreement and other issues.

Johnson said it seems as if the nursing home is dragging out the case. Such delays can be frustrating to families, especially in nursing home cases that often involve elderly patients and relatives for whom time is of the essence, plaintiffs' attorneys say.

In a statement, Grace Living Center Chickasha said it believes arbitration agreements are “a fair and often better and faster alternative to costly and time-consuming litigation for both sides.”

But Johnson said she doesn't believe binding arbitration agreements should be allowed in nursing homes.

“We didn't even realize what we were signing,” she said.