Binding Arbitration in Nursing Homes - A Battle Brewing

July 18, 2017| Von Liz Kim | General Liability | English

Region: North America

The Centers for Medicare and Medicaid Services (CMS) recently enacted many requirements that nursing homes must meet in order to receive federal funding. These requirements have been in place since the late 1980s, and while there have been revisions over time, this is the first comprehensive overhaul in more than 20 years. The new regulations are intended to realign government requirements with current clinical and professional standards. The ultimate goal is to improve quality of care and resident safety for the growing and clinically more complex population of long-term care facilities. The regulations, which took effect in November 2016, have multiple phases.

One issue that has drawn strong opposition from the nursing home industry is the banning of a Binding Arbitration Agreement between a resident and a facility. A September 2016 New York Times article talks about this change, which could affect as many as 1.5 million residents in federally funded nursing homes.

The new rule bans the use of pre-dispute binding arbitration agreements widely used in admission contracts between residents and facilities. The nursing home industry contends these agreements have helped nursing homes contain their legal costs by keeping claims out of courts, using a private system with a faster, simpler and less expensive settlement process benefitting all parties. On the other hand, supporters of the ban point to several issues with binding arbitration agreements:

  • Residents are forced to choose between securing their legal rights and getting the care they need.
  • Residents may not fully understand what they are signing, or be aware that arbitrations generally favor nursing homes.
  • Arbitration enables nursing homes to keep incidents out of the public limelight.
  • It is difficult to verify outcomes of arbitration as they are confidential and there is no database that stores such information.

The outcome of this debate can be far reaching. In particular, as writers of nursing home liablity, we have to ask ourselves if we are ready for a potential increase in claim severity.

When the new rule was proposed last year, it was aimed at improving disclosure. However, with increasing number of residents expressing concern over the widespread use, or abuse, of arbitration, the agency re-examined its stance. The revision would afford new protections to more than 1.5 million residents in federally funded facilities. It is not surprising at all that the nursing home industry reacted strongly against the new rule, claiming the agency has exceeded its authority and that the new rule would open the door to more lawsuits. This will not only increase costs, but will also force some operations to shut down.

The ban on arbitration agreements was to become effective on November 28, 2016. However, the American Health Care Association, a trade group for nursing homes, challenged it in court. The judge sided with the group and temporarily blocked the ban. He agreed that CMS exceeded its authority and left the issue for the Congress to approve.

The ban would mean more claims being battled in courts. For insurers writing nursing home liability, it would not only increase expenses but likely result in larger awards or settlements and ultimately have an adverse impact on the profitability of this business.

While there is a question as to when Congress will actually vote, what we know right now is that CMS will not be able to enforce its ban on the use of binding arbitration. But stay tuned. The argument is far from over, and we will continue to monitor and update you on the ongoing battle.


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