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Arbitration Agreements Continue to Create Compliance Hot Spots
Supreme Court and Trump Allow Them, but Use With Vulnerable Population Attracts Attention
Courts are continuing their trend of enforcing arbitration agreements in healthcare and other settings, but Democratic lawmakers are still pushing the federal government to ban them at least in the long-term care (LTC) setting. Providers should be relieved by the latest U.S. Supreme Court ruling on the subject, but should still draft arbitration agreements carefully and keep an eye on this developing area of law that could increase their compliance risk.
Supreme Court Continues Trend
In May 2017, the U.S. Supreme Court decided an important case involving a state’s attempt to make it harder for LTC providers to require their patients to give up their right to go to court should something go wrong. In Kindred Nursing Centers v. Clark, a nursing home was sued for wrongful death for substandard care after two residents, whose power of attorney agreements didn’t expressly allow their relatives to sign away their rights to litigate, died.
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Arbitration Agreements Continue to Create Compliance Hot Spots
Applying its rule that the power of attorney must explicitly relinquish the residents’ right to go to court, and these did not, Kentucky’s courts had refused to give force to the contracts’ arbitration provision, which would have required the relatives, as agents of the residents, to go into arbitration with Kindred, rather than sue it in court. Typical powers of attorney allow a person to designate someone as their agent to make important legal decisions and act as their representative.
But the Supreme Court reversed. “Kentucky tried to enforce a rule that made extra requirements for a power of attorney to enter into an arbitration agreement,” explains Howard Suskin, a commercial litigation partner with Jenner & Block in Chicago. “The Supreme Court said ‘no.’”
Because Kentucky’s rule singled out arbitration agreements and treated them differently than other contracts, it ran into trouble with the Supreme Court’s interpretation of the Federal Arbitration Act (FAA), which it said “preempts any state rule that discriminates on its face against arbitration or that covertly accomplishes the same objective by disfavoring contracts that have the defining features of arbitration agreements.”
Part of a Broader Trend Toward Favoring Arbitration
Attorneys say the Kindred ruling is not surprising – but still important for healthcare providers to note.
Suskin points to Kindred as an example of the broader trend in which courts generally will enforce arbitration agreements and will be unsympathetic to efforts to make their enforcement more difficult. Arbitration agreements have become popular with companies in a range of contracts, as they require consumers – and patients in the healthcare setting – to give up their right to bring lawsuits, so fewer companies will end up as defendants in court, facing potentially expensive liability.
“I agree that for the most part, the 7-1 Supreme Court decision is a helpful development for organizations that use arbitration clauses to limit their liability, as it reinforces the federal policy of enforcing arbitration provisions and favorable treatment of arbitration clauses,” says Harsh Parikh, an associate in the healthcare practice group at Crowell & Moring in Los Angeles.
Healthcare Angle Complicates the Picture
Nursing homes and other healthcare providers were particularly interested in this case because it was one in a line of cases over the last five years in the long-term care setting where some state courts had seemed to be moving the needle closer to protecting patients’ rights. “Patients in long-term care settings are particularly in a vulnerable position, and state courts often attempt to find ways to circumvent binding arbitration clauses to reach more ‘equitable’ results,” notes Parikh.
Suskin agrees. “Even in situations where you have a more vulnerable population negotiating with a big corporation that owns nursing homes, courts will enforce arbitration agreements,” he says.
But California in particular is known as being pro-consumer, adds Suskin, and its state courts have continued to refuse to enforce arbitration agreements in cases that have gone up to the U.S. Supreme Court. “State courts continue to be very mindful about potentially unconscionable terms in arbitration agreements,” he says. “If I had to rank states where there is still skepticism about their enforcement, California is definitely one example.”
The federal government even got in on the act, with the Obama-era Centers for Medicare & Medicaid Services (CMS) trying to ban arbitration agreements in LTC settings in 2016. However, CMS’s “Reform of Requirements for Long-Term Care Facilities” rule was challenged in court by a healthcare industry group, and after a federal court in Mississippi enjoined the rule in November 2016, CMS suspended its enforcement, explains Parikh.
Then CMS issued a proposed revision of the rule in June 2017 that “would remove provisions prohibiting binding pre-dispute arbitration and strengthen requirements regarding the transparency of arbitration agreements in LTC facilities,” which is “consistent with our approach to eliminating unnecessary burden on providers,” according to the agency’s Federal Register notice.
The comment period on the rule closed August 7, 2017. And the issue is still getting attention: A group of 31 senators, led by Democrats Al Franken and Ron Wyden, wrote to CMS that day, urging the agency to reverse course and enforce its original final rule.
Suskin says that under the Trump administration, it is very unlikely the rule will be enforced, and recent news reports of deaths in Florida nursing homes continue to criticize Trump’s policy toward arbitration agreements. Other reports indicate there would be more litigation surrounding CMS’s new proposed new rule allowing arbitration in LTC settings if it goes into effect. Welcome to the new land of suspended rules and continued uncertainty.
Careful Drafting Crucial in Days to Come
While the Kindred ruling won’t materially change the way providers operate on a daily basis, according to Parikh, “this is an evolving area of the law, with legislators and regulators trying to balance the needs of an especially vulnerable population with the mandates of the FAA.”
Most courts will likely continue the trend of making it easier for providers to require patients to sign agreements requiring them to go to arbitration if something goes wrong, which should be reassuring to LTC facilities and other providers. But there are still a few pitfalls that sloppy contract drafting can land you in if you’re not careful:
- Make sure there is a clear notice, in bold, of any agreement to arbitrate disputes. “Let patients know that they are giving up their right to a jury, and their right to appeal,” Suskin says.
- Avoid using an agreement or contract that may be considered unconscionable. “Some courts have not enforced arbitration agreements they viewed as extremely one-sided,” he explains. “One example would be where an arbitration agreement says the consumer has to put up a lot of money to pay for arbitration, more than the dispute would be worth. It has to be fairly bad to fall into that category.”
From the ProfEdOnDemand Blog
Our ProfEdOnDemand Blog is updated almost every day with new posts related to a range of practice areas and fields. Here are the highlights in healthcare compliance from this month:
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Learning the Medicare Appeals Process Isn’t as Difficult If You Band Together
While appealing denied Medicare claims is a resource-draining task, the risk of doing nothing is far greater. In fact, if your medical practice can’t show that you attempted to appeal a problematic claim, you’ll appear to be unaware of potential compliance issues. That may be ironic, considering the fact that many denials – some say up to 30 percent – simply aren’t valid, but it’s an irony you can’t spend a lot of time crying over. Read More
Find Out How to Decode the Neoplasm Table, Boost Revenues and Avoid Denials
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The benefits and drawbacks of telemedicine are often specific to each provider and each practice, but there are some common, cross-specialty considerations. In this post, the third in our series on telehealth and telemedicine, we’ll look at some of the pros and cons of bringing telemedicine capabilities to your practice. Read More
What’s happening around the healthcare compliance water cooler this month: