Nursing Home Arbitration Agreement Unenforceable as “Unconscionable”

Nursing Home

In recent years, courts have allowed nursing homes to implement arbitration agreements that are contained within standard resident contracts. However, the Illinois Appellate Court issued a decision on March 20, 2023, that may now require arbitration agreements contained in resident contracts to meet substantive and procedural reasonableness standards going forward. Facilities who wish to continue pursuing arbitration rather than litigation should consider this Court’s rationale going forward and work with legal counsel to ensure that the arbitration agreement is enforced.

The Illinois Appellate Court for the First District affirmed a trial court’s decision in Turner v. Concord Nursing and Rehabilitation Center, LLC. and determinedthat a three-page arbitration agreement contained within a 120-page admissions packet was both procedurally and substantively unconscionable when presented to a returning resident.

Marvin Turner resided at Aperion, a long-term nursing facility owned by Concord from January 2016 to April 2020. In February of 2020, he was treated at a local hospital for an infected skin ulcer that ultimately resulted in the amputation of his leg above the knee. Upon his return to the nursing home after the surgery, he was presented with a 120-page admission packet, where the returning resident was to sign in 20 places in the extensive document. Within those 120 pages was a three-page arbitration agreement. The agreement included three provisions at issue: (1) the waiver of a jury trial and the requirement of binding arbitration, if non-binding mediation was unsuccessful; (2) the arbitration awards being limited to no more than $250,000; and (3) the prohibition of the award of attorney’s fees and punitive damages, if the resident won at arbitration, which otherwise would be given under Illinois law.

Three days after signing the agreement, Marvin Turner’s niece filed suit in Cook County against the nursing home on his behalf alleging negligent care in violation of the Nursing Home Care Act. Concord moved to dismiss the complaint and compel arbitration.

After considering the surrounding circumstances, the trial court determined the arbitration agreement was “unenforceable” finding that the arbitration agreement was procedurally and substantively unconscionable. First, the court held that the arbitration agreement was “procedurally unconscionable” based on the manner in which the admission packet was presented and executed by Turner. Although nursing home staff spent an hour explaining the admission packet to him, Turner had returned to the facility just one day after his hospital admission for his leg amputation. In addition to his numerous health problems, testimony from his niece indicated he was “confused” and “had difficulty reading, comprehending and speaking” at the time he signed the agreement. The trial court concluded Turner was left with little choice but to sign the agreement if he wished to be readmitted to the facility. Second, the agreement itself was “substantively unconscionable” because the provisions of the arbitration agreement limited Turner’s potential financial awards and instead favored the facility. The court did not address whether the entire arbitration provision was “enforceable,” since it found the provisions unconscionable. As such, the court said the case would proceed in the court system, and not in an arbitration forum.

The outcome of this case likely could have been different had the nursing home taken different steps in attempting to litigate disputes with the resident and his family in an arbitration setting. To avoid procedural unconscionability, nursing home staff need consider the physical and cognitive status of a resident. For instance, given Turner’s inability to read and comprehend, the nursing home staff at Aperion could have presented a separate, three-page arbitration agreement to Turner rather than a lengthy packet. Next, Turner’s power of attorney or representative should have been present to assist him when he was presented with the admissions packet and arbitration agreement. Lastly, it should have been made clear to Turner that signing the arbitration agreement was not a requirement for admission. These factors will determine whether an arbitration agreement may be considered procedurally unconscionable.

Turning to substantive unconscionability, the provisions waiving attorney’s fees and punitive damages in Aperion’s contract significantly adversely affected Turner, making them unenforceable. Moreover, the contracts provision limiting arbitration awards to no more than $250,000 created a “severe cost-price” disparity between the parties and as a result, is substantively unconscionable. These provisions contravened the Illinois Nursing Home Act, which expressly states residents may cover actual damages, costs and attorney’s fees and ultimately resulted in a finding of the agreement being unconscionable. To avoid a potentially unconscionable contract, nursing homes should review the provisions of any arbitration agreement it may have to ensure the specific rights outlined above are not wrongfully limited or waived by a resident.

Going forward, nursing homes should consider reviewing their admissions contracts that may contain arbitration agreements to ensure they are substantively fair to the resident. More importantly, nursing homes need to consider the manner in which the agreement is presented to the resident to ensure the resident is aware of what exactly they are signing. Be aware that courts strongly consider a resident’s right to make an informed decision relating to his or her health care when determining the validity of an agreement.

This decision also relates to the policy behind the Medicare Regulations dealing with arbitration agreements. 42 CFR 483 allows facilities to execute arbitration agreements upon a resident’s admission but requires full transparency in doing so to ensure the resident’s rights are protected. With this in mind, nursing homes should fully explain the agreement to the resident or their representative and ensure they are aware signing the agreement is not a condition for admission.

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.

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