House Panel Approves Fairness in Nursing Home Arbitration Act: Law Would Prohibit Nursing Home Pre-Dispute Arbitration Agreements

04 August 2008 Publication
Authors: C. Frederick Geilfuss II Nathaniel M. Lacktman Shirley P. Morrigan Lawrence W. Vernaglia

Legal News Alert: Health Care

On July 30, 2008, the United States House of Representatives Committee on the Judiciary approved the Fairness in Nursing Home Arbitration Act of 2008, H.R. 6126 (Act). The Act prohibits pre-dispute arbitration clauses in nursing home contracts. Supporters contend the Act protects vulnerable residents and their families from unknowingly forfeiting the right to a jury trial, while critics counter the increased risk of litigation will cause facilities to incur higher insurance costs or go out of business entirely. If enacted into law, nursing facilities nationwide will need to examine their existing admission and arbitration agreements for compliance.

Pre-Dispute Arbitration Agreements Invalid
The Act would void and render unenforceable any and all pre-dispute arbitration agreements between residents and long-term care facilities, whether part of an admission agreement or as a separate arbitration agreement. Specifically, the Act applies to a “pre-dispute arbitration agreement entered into either at any time during the admission process or at any time after the admission process." Long-term care facilities are defined to include nursing and skilled nursing facilities as well as any public facility, proprietary facility, or facility of a private nonprofit corporation that:

(i) makes available to adult residents supportive services to assist the residents in carrying out activities such as bathing, dressing, eating, getting in and out of bed or chairs, walking, going outdoors, using the toilet, or obtaining or taking medication; and (ii) provides a dwelling place (which may contain a full kitchen and bathroom) for residents in order to deliver supportive services described in clause (i), that includes common rooms and other facilities appropriate for the provision of such services to residents of the facility; but excludes a facility, or portion of a facility, that either does not provide the services described in clause (i) or has as its primary purpose to educate or to treat substance abuse problems.

The Act does not apply retroactively, so agreements signed prior to the date of enactment would remain in effect. Nor does the Act affect arbitration agreements signed after a dispute has arisen.

Supporters of the Act claim residents often unknowingly waive their right to file suit when signing the arbitration agreement, thus limiting their options for recourse in the event of substandard care. "Arbitration agreements are often buried in overly complicated contracts, and many consumers do not realize they are waiving their legal options," said Rep. Linda Sánchez (D-Calif.). In addition to eliminating the right to a jury trial, pre-dispute arbitration agreements often limit the amount of discovery that may occur, making it more difficult for residents to establish proof of substandard care. “It is only fair that families and residents have the opportunity to make an informed decision based on the facts of their particular case,” stated Sen. Herb Kohl (D-Wisc.).

Critics counter that patients are unlikely to agree to arbitration once a dispute has occurred, resulting in more litigation and increased costs for long-term care facilities. The American Health Care Association and National Center for Assisted Living (AHCA/NCAL) expressed disappointment with the Act, noting that pre-admission arbitration clauses "not only allow facility staff to better concentrate time and effort on their job of caring for patients and residents, but also better ensure scarce Medicaid resources go towards improving patient care — not diverted to pay the escalating costs associated with lawsuits." Critics, including Senator Orrin Hatch (R-Utah), ranking member of the United States Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition, and Consumer Rights, have expressed concern that increased litigation will lead to higher insurance costs that will be ultimately born by consumers and may force some facilities out of business.     

The Act passed the House Judiciary Committee in a 17-10 vote and the bill is now available for consideration by the full House of Representatives. Sens.Kohl and Mel Martinez (R-Fla.) have introduced a companion bill, S. 2838, in the Senate Judiciary Subcommittee on Antitrust, Competition, and Consumer Rights and the Special Committee on Aging.

Impact on Facilities
A decrease in arbitration and an attendant increase in litigation may potentially impact long-term care facilities by increasing costs, decreasing flexibility, prolonging disagreements, and reducing confidentiality. Arbitration agreements often present a strategic opportunity for facilities to reduce costs and create flexibility by streamlining evidentiary rules and procedures. In addition, arbitration clauses may promote early settlement by specifying that each party bear its own fees and costs. Arbitration clauses can also provide confidentiality protections not afforded to public trials.

To retain the benefits of arbitration while complying with the Fairness in Nursing Home Arbitration Act, long-term care facilities would need to obtain arbitration agreements after disputes arise. Facilities seeking to employ arbitration agreements also should consider devoting resources toward informing residents of the potential benefits of arbitration.

Until the Act is signed into law and goes into effect, facilities can enter into and enforce arbitration agreements. Because the Act, as currently drafted, does not apply retroactively, those agreements would remain in effect even if the Act became law. However, arbitration agreements for long-term care facilities also may be subject to state statutes and regulations, and facilities are advised to comply with those laws.

If enacted, the Act will prevent long-term care facilities from limiting residents’ legal options through a pre-dispute arbitration agreement. Long-term care facilities would need to review standard admission and arbitration agreements to ensure compliance with the Act. If pre-dispute arbitration provisions are banned, facilities would need to focus instead on post-dispute arbitration agreements and ensure that sufficient liability protections are in place to guard against the risks of increased litigation.

Access the text of H.R. 6126 here:

Access the text of S. 2838 here:

Legal News Alert is part of our ongoing commitment to providing up-to-the minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

Janice A. Anderson
Chicago, Illinois

Fred Geilfuss, II
Milwaukee, Wisconsin

Nathaniel M. Lacktman
Tampa, Florida

Shirley P. Morrigan
Los Angeles, California

Lawrence W. Vernaglia
Boston, Massachusetts

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