In September, the federal Centers for Medicare & Medicaid Services (CMS) issued a new rule that would prevent most nursing homes and other long-term care facilities from using forced arbitration to strip new residents of their right to file lawsuits against these companies. The industry soon fired back by doing the very thing it doesn’t want its customers to do: filing a lawsuit. This morning, the judge in the case granted the industry’s request for a preliminary injunction preventing the new rule from being enforced.

Just to recap: The CMS rule basically says that if a long-term care facility wants to accept Medicare or Medicaid, it will have to stop putting forced arbitration clauses in new residential agreements. Already-signed resident agreements that contain these clauses would not be affected.

Forced arbitration is when both parties have agreed to settle all legal disputes outside of the courtroom and before an arbitrator. The idea is that it’s supposed to faster and less-costly, but it’s not necessarily either of those things.

More problematic is that most arbitration clauses include a ban on class actions — even through arbitration. Thus, when you have a systemic issue affecting multiple residents of a nursing home, each resident would have to go through the arbitration process on their own.

The CMS arbitration rule was slated to go into effect on Nov. 28, but the lawsuit filed by the American Health Care Association (an industry trade group) and others sought a preliminary injunction barring the government from enforcing the rule pending consideration of the merits of the case.

In his order [PDF] granting that preliminary injunction, Judge Michael Mills also raises several questions about the industry’s arguments for forced arbitration.

Mills notes that the industry has stressed the notion that arbitration is fast and efficient, but points out that this argument focuses selectively on just those cases that go to arbitration, without addressing the bigger-picture issues as they relate specifically to nursing home residents and contracts.

“[A]ccording to the National Center for Health Statistics, 50.4% of nursing home residents have been diagnosed with Alzheimer’s or other dementias,” writes the judge. “Arbitration agreements are contracts, and basic contract law requires that the parties to a contract be mentally competent at the time of execution of the agreement… There is no more basic defense to the validity of a contract than lack of mental competency.”

While the AHCA countered that courts can and do invalidate arbitration agreements signed by parties deemed not mentally competent, Judge Mills says that, in his experience, “Many nursing homes will obtain signatures from residents in spite of grave doubts about their mental competency, or, more often, they will choose to have relatives of the residents sign the agreements, even when no power of attorney has been executed.

Mills contends that these same nursing homes may later file motions to compel arbitration based on those agreements, and that the only way to resolve that problem is through “time-consuming litigation, which serves as a very significant incentive against filing suit in the first place.”

Says the judge, “This court has repeatedly seen these facts play out in its courtroom, and it has seen these fact patterns repeatedly arise in published decisions from other Mississippi courts.”

And yet, Judge Mills determined that there is a chance that the AHCA and the other plaintiffs could prevail on the merits of their case. He also agreed with the industry that the plaintiffs could suffer some irreparable harm — i.e., that homes would have to strike arbitration clauses from their contracts for the time-being — if the rule were allowed to be enforced while this legal matter is still pending.

With the injunction in place, enforcement of the rule is delayed.

When reached by Consumerist for comment, a rep for CMS said the agency does not comment on litigation.

However, supporters of the rule are speaking out against the injunction.

“Congress could not possibly have intended for the Federal Arbitration Act to override every other law and leave consumers locked out of the courthouse without legal protection,” explains our colleague, George Slover, senior policy counsel for Consumers Union. “And the unfairness of that is brutally clear when you consider nursing home residents who are so dependent on their caretakers, and so vulnerable to neglect and abuse.”

“We remain confident that CMS has clearly acted within its existing legal authority,” said American Association for Justice President Julie Braman Kane, “and look forward to the full implementation of this rule, which ensures that nursing home residents retain access to the courts and that resident abuse is not left unchecked.”

Not surprisingly, ACHA CEO Mark Parkinson applauded Judge Mills’ decision.

“The court agreed with our argument that imposing a November 28 implementation would have resulted in real harm to providers as well as to our residents,” says Parkinson in a statement. “We believe Federal law plainly prohibits CMS from issuing this arbitration regulation, and this injunction will halt implementation of the final rule until the court can consider the merits of the case.”

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