As we’ve written about previously, some nursing homes and other long-term care facilities use forced arbitration contracts to prevent their residents bringing a legal action against the home in a court of law. Today, the Department of Health and Human Services issued a new rule that will prohibit long-term care facilities that accept Medicare or Medicaid from forcing residents into arbitration.

The arbitration rule is part of a massive revamp [PDF] by the Center for Medicare & Medicaid Services (CMS) of consumer protections at long-term care facilities.

“We are requiring that facilities must not enter into an agreement for binding arbitration with a resident or their representative until after a dispute arises between the parties,” reads the rule. “Thus, we are prohibiting the use of pre-dispute binding arbitration agreements.”

That means that nursing homes and patients and still enter into arbitration if they choose, but the contracts can not be written so as to automatically compel both parties into arbitration.

When CMS proposed these limits, some supporters of the process countered that the agency lacks the authority to restrict the use of arbitration. After all, the Supreme Court has repeatedly upheld the use of arbitration clauses to compel disputes out of the courtroom and into private arbitration.

However, CMS concluded that the Federal Arbitration Act (FAA), which allows for these sorts of clauses in contracts, does not limit regulators’ ability to put limits on the use of arbitration agreements.

“[T]he plain language of the FAA applies only to existing arbitration agreements voluntarily made between private parties,” explains the CMS in the finalized rule, “it does not compel or require the use of arbitration between private parties. Because it does not prescribe circumstances in which arbitration agreements must be used, it does not impinge on federal agencies’ rights to issue regulations regulating the conditions of adoption of such agreements, assuming that the Secretary otherwise has proper statutory authority.”

However, because the CMS concedes that the FAA still applies to agreed-upon contracts, the new rule — which goes into effect Nov. 28, 2016 — will have “no legal effect on the enforceability of existing pre-dispute arbitration agreements.”

So if a nursing home resident has already signed a contract containing a mandatory arbitration clause, CMS confirms to Consumerist that the patient will continue to be bound by the terms of that agreement.

“[T]he rule we are issuing does not affect already-existing arbitration clauses, but prohibits Medicare-and Medicaid-participating LTC facilities from using them in the future, as a condition of participating in these programs,” reads the rule (on p. 399). “While we share the same public policy concerns about already-existing arbitration agreements, we are only addressing agreements reached after the effective date of this rule.”

The question is whether or not CMS will use its leverage to alter existing agreements when it comes time for facilities to re-certify with Medicaid and Medicare. We’ve asked CMS to comment on that possibility but have not yet heard back.

Sen. Patrick Leahy (VT), who had previously raised concerns about arbitration clauses in nursing homes — and who has co-sponsored legislation that would more generally restrict the use of these clauses in consumer contracts — applauded today’s ruling.

“It is simply unacceptable to provide taxpayer dollars to organizations that deny consumers their day in court,” said Leahy in a statement to Consumerist. “Today’s rule is a small but important victory in the long battle to root out these secretive, complicated arbitration clauses that favor corporate interests over consumer rights.”

Susan Harley, Deputy Director of Public Citizen’s Congress Watch Division claims that arbitration clauses can be used to prevent nursing home residents from filing lawsuits to seek compensation for fraud, abuse, or neglect, “forcing them instead to seek redress before corporate-friendly arbitrators, with hearings held in secret and few grounds permitted for appeal.”

While people looking for long-term care facilities can try to shop around for a home that doesn’t force residents into arbitration, critics of these clauses say such contractual minutiae is rarely a consideration for most consumers, who may not even know they are signing away their right to trial in a court of law.

“Nursing home admissions can be a stressful and confusing time for seniors and their families,” explains Harley. “They are in no position to evaluate the coercive fine-print terms in contracts, appreciate the critical rights they are giving up by entering into a pre-dispute arbitration agreement or walk away from the contract if they object to rip-off provisions.”

Sen. Leahy says that patients and their loved ones should be selecting a long-term care facility based on factors like cost, quality of care, and proximity to family instead of contractual fine print.

Says the senator, “These clauses are not in the interest of the consumer, yet the sad reality is that today too many Americans must choose between forfeiting their legal rights and getting adequate medical care.”

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