Last month, the federal government issued new rules for nursing homes, barring most long-term care facilities from using forced arbitration agreements to stop new residents from filing lawsuits against the homes. Now nursing home operators and industry trade groups are challenging that rule by doing the one thing they want to prevent their patients from doing: going to court.

For those not familiar with forced arbitration, here are the basics. A clause in your contract generally says that you and the company agree that either of you has the right to move any legal dispute between you out of the courtroom and into private, binding arbitration.

So your issue isn’t heard by a judge and jury, but by a professional arbitrator who may be very familiar with the company involved in the dispute and their lawyers. A recent report on nursing home arbitration found that one arbitration firm had handled some 400 arbitration hearings involving the lawyers for one nursing home.

Additionally, most arbitration clauses include a condition that bars customers from joining together in any sort of class action — even in arbitration. Thus, if residents of a long-term care facility believed they were all being defrauded through illegal charges, each individual resident would have to go through the arbitration process with no guarantee that the arbitrators would reach the same conclusion in all cases.

The new rule, prepared by the Center for Medicare & Medicaid Services (CMS), says that if a nursing home wants to accept Medicare or Medicaid, it will have to stop putting forced arbitration clauses in the agreements, but only for new contracts. Already-signed resident agreements that contain these clauses would not be affected.

In a lawsuit [PDF] filed yesterday in a federal court in Mississippi by the American Health Care Association and others, the nursing home industry alleges that CMS exceeded its authority, claiming that the law gives the agency no authority to regulate facilities’ use of arbitration.

Even if the rule is allowed by law, argues the complaint, it’s “arbitrary and capricious” because it would deprive nursing homes and their residents of the “benefits of arbitration and result in the siphoning of resources toward litigation costs and away from resident care.”

The new rule does not prevent nursing home residents of choosing to enter into arbitration; it just means the home can’t force the dispute out of the courtroom. However, the complaint contends that “parties almost never agree to arbitration in a particular case after a dispute has arisen.”

As usual in anti-arbitration arguments, the AHCA lawsuit (written by lawyers, mind you) puts the blame on greedy attorneys, noting that “lawyers are more comfortable in the court system, where cases take longer to resolve and legal fees typically are higher, they virtually always convince their clients to litigate in court.”

George Slover, Senior Policy Counsel for our colleagues at Consumers Union, has reviewed the AHCA suit and says that while he’s not surprised that the industry is trying to block the new rule from being enforced, he believes the lawsuit is without merit.

“CMS is well within its legal authority to require nursing homes that want federal certification not to block residents and their families from taking legal action to ensure that basic legal protections are enforced,” explains Slover. “There have been too many instances of gross abuse and neglect. Nursing homes should not be able to slip forced arbitration clauses into admissions paperwork to shield themselves from accountability. This rule will help ensure that nursing home operators are held accountable and face a strong deterrent.”

The irony of the nursing home industry using the legal system to prevent its patients from using the legal system wasn’t lost on Susan Harley at Public Citizen, an organization that submitted some 21,000 comments to CMS seeking to end forced arbitration in long-term care contracts.

“It’s obviously striking that these nursing homes are using the court system to deny seniors and other residents of their right to their day in court,” Harley tells Consumerist.

While arbitration supporters often play up the costs of litigation and the financial benefits that plaintiffs’ attorneys can reap, Harley contends that airing legal disputes in the public forum of a courtroom helps to shine a spotlight on bad industry practices.

“Forced arbitration is more than just a ripoff clause; it’s a shroud of secrecy that allows abuse and neglect to fester outside of the public eye,” she explains. “Lawsuits alert watchdogs, public and private, to monitor these corporate facilities that are intended to care for our most vulnerable populations.”

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