A decision by the United States Supreme Court, along with federal regulatory action, has cleared the way for nursing homes in Illinois to adopt enforceable arbitration agreements as part of standard resident contracts. For nursing homes and other long-term care facilities, these developments, which void prior prohibitions on arbitration agreements, allow for opportunities to reduce litigation and claims costs by directing disputes to arbitration.
For those who are unfamiliar with the process, arbitration is a form of alternative dispute resolution, sometimes called ADR. Arbitration and mediation are referred to in this way because they are alternatives to traditional litigation, that is, lawsuits, for resolving disputes between parties. In an arbitration, instead of filing a lawsuit in the public court system, the parties submit their disagreement to a private panel of decision makers, or arbitrators. Those decision makers can be selected by the parties, and the evidence presented to the arbitrators can be governed by rules established by the parties. In most cases, arbitration can result in significant savings for both parties in cost and time, as compared to traditional litigation. Parties who select arbitration are also able, if they choose, to keep their dispute private and confidential, as the proceedings are not made part of public court records. As a trade-off for these benefits, though, parties waive their right to have their disputes decided in a legal proceeding by a judge or jury.
U.S. Supreme Court Upholds Enforceability of Arbitration Agreements
While the Illinois Nursing Home Care Act (“NHCA”) does not expressly prohibit arbitration agreements in residency contracts, it does declare null and void any agreement by a nursing home resident that waives the resident’s right to a trial by jury for claims against a facility. Because arbitration agreements have the same effect as waiving a right to a jury trial, the NHCA has, essentially, prevent nursing homes from using arbitration to resolve disputes with residents and their families. Legal scholars have frequently questioned the whether this provision of the NHCA could withstand the federal public policy that favors arbitration under the Federal Arbitration Act. The U.S. Supreme Court case of Kindred Nursing Centers, L.P. v. Clark answers that question squarely against the NHCA and in favor of agreements to arbitrate.
The Kindred case dealt with a dispute in Kentucky, but the decision is also binding for nursing facilities in Illinois. In Kindred, family members of nursing home residents sued Kindred Nursing Centers for wrongful death and other damages associated with injuries sustained by the residents. The Kindred residency agreements, however, included provisions that required all disputes between the resident and Kindred to be submitted to arbitration. Initially, the Kentucky state court held that the arbitration provisions were void under Kentucky state law as invalid waiver of plaintiffs’ right to have their claims decided by a jury. The U.S. Supreme Court, however, reversed the state court decision and ruled that the claims must be submitted to arbitration as required by the residency agreement. The Supreme Court’s decision upholds the Federal Arbitration Act as preempting any state law rendering arbitration agreements invalid simply because they waive a party’s right to file a lawsuit. Pursuant to the ruling in Kindred, so long as an arbitration agreement is otherwise valid and enforceable as a contract between two parties, it cannot be thrown out simply because it requires claims to be submitted to arbitration.
For nursing homes in Illinois, the Kindred decision is significant because it renders the NHCA’s prohibition on arbitration agreements moot, as preempted by federal law. Practically speaking, Illinois nursing homes and long-term care facilities can begin, or continue, to include arbitration requirements in their residency agreements with confidence that those provisions will be enforceable.
Regulatory Changes Allowing for Enforcement of Arbitration Agreements
Separate from the Kindred decisions, the Centers for Medicare and Medicaid Services (“CMS”) have seen regulatory changes that also support the use of arbitration agreements in the nursing home setting. Previously, CMS had adopted regulations that were set to take effect in November, 2016, that would prohibit certified Medicare and/or Medicaid facilities from requiring arbitration agreements in resident contracts. A lawsuit was subsequently filed that prevented those regulations from going into effect. In the meantime, CMS proposed regulations that would prevent the prior rule from ever taking effect, and will clear the way for Medicare and Medicaid facilities to require residents to agree to binding arbitration as a condition for admission.
If the proposed regulations are adopted, nursing homes may condition admission to the facility on agreement to binding arbitration, so long as the arbitration agreement is written in plain language, is included in the admission contract, and the facility posts a notice describing its arbitration policy in an area that is visible to residents and visitors. Under the current regulatory timeline, we expect that a decision will be made concerning adoption of the proposed rules later this year.
Using Arbitration Agreements for Your Facility
With these developments, the path is clear for nursing homes who wish to take advantage of the benefits of arbitration to include arbitration agreements in resident contracts. While the enforceability of a particular arbitration agreement will depend on the individual contract, there are some practical things that facilities can do to strengthen the likelihood any disputes with your residents will be resolved through arbitration, and not through litigation.
First, in drafting your arbitration provision, work with your legal counsel to craft language that is understandable to your residents and/or their representatives, that clearly spells out the intent to submit all claims to arbitration and waive the parties’ right to litigate. Second, consider adopting a provision requiring binding arbitration, which means that both parties agree to be bound by the ruling of the arbitrators and waives the right to dispute that ruling through subsequent litigation. Third, include the arbitration terms as part of the residency contract, but include headings or typeface that bring attention to the arbitration provision, so that it is clear and conspicuous to the resident. Consider training your admission staff to specifically review and explain the agreement to residents, and have the resident or their representative separately initial the arbitration provision to confirm their express agreement to that term. Fourth, work with your legal counsel to ensure that the arbitration agreement is as broad as possible, so that it applies not only to financial disputes between the resident and the facility, but also to claims involving physical injury, violations of the NHCA, and claims by the resident’s estate and/or personal representative after the resident’s death.
Airdo Werwas, LLC is available to assist your facility in drafting arbitration terms for resident agreements, or reviewing your current resident contracts to ensure your arbitration terms are valid and enforceable.